Do student loan repayment benefits make the grade?
May 24, 2022
Forty-six million Americans are holding their breath. In August, the federal student loan moratorium, originally put in place during the pandemic, is scheduled to come to an end after six extensions. As borrowers prepare to start chipping away at $1.75 trillion in student loan debt, employers have an opportunity to not just help their employees pay down loans, but create long-term organizational loyalty . In a recent survey by financial-benefit provider Betterment at Work, 57% of employees held that their employer should play a role in helping them pay off their debt, and 74% said they’d leave their current jobs for a company offering loan repayment benefits. Kristen Carlisle, general manager of Betterment at Work, predicts that student loan repayment benefits will follow the trajectory of the 401(k) : once a luxury, eventually to become a baseline benefit . “People who are dealing with student loans were disproportionately impacted by the pandemic,” she says. “Many had to take on a second job and dip into their emergency funds at a disproportionate rate...and it created this pressure cooker of financial stress. Finances are a large component of mental wellness, and newer generations entering the work- force in droves every year are saying, ‘I don’t want another day of PTO . I have to deal with very real things in my life that you can help me solve.’”
Employers are rising to meet that demand by partnering with student loan repayment platforms, like Betterment at Work. These programs empower employers to match an em- ployee’s loan payment, much as they’d match into a 401(k) account, helping workers get out of debt faster and start making long-term investments in retirement. It’s no coincidence that this benefit is trending as the competition to recruit and retain talent heats up amid the Great Resignation. With a staggering 86% of Betterment survey participants reporting that they’d stay at their job for at least five years if it offered loan repayment benefits, an employer contribution toward their employees’ monthly loans can be impactful. But perhaps the most vital compo- nent of these programs, Carlisle says, is education. “Offering guidance that allows employees to concep- tualize how to manage their debt [is key],” says Carlisle, stressing that the best platforms are those offering advice that’s personalized to an employee’s end goals and financial landscape. “Where do you want to retire? What would you like your retirement to look like? What age would you like to retire at? Do you want to be in Florida or New York? It’s okay if those things change over time, but directionally, where are you? [Our advisers can tell you] what your financial picture would look like if you were to pay off one loan versus another, or all of them a little bit, or putting in an extra $500, or taking advantage of an employer match.”
But education isn’t just for the employees. Employers can also learn about policies they may not have been aware of, like the CARES Act provision for $5,250 of tax-free employer student loan assistance through 2025, or the Secure Act 2.0 (pending Senate approval) which will allow employers to match their employees’ student debt repayments as tax- advantaged contributions to the employee’s retirement plan. Those changes in policy have helped drive interest in student loan repayment, especially among enterprise companies, says Kate Winget, Managing Director of Gradifi, a repayment platform administered by Morgan Stanley at Work. Gradifi counts Peloton, Random House and Pricewa- terhouseCoopers among its clients. “[Our clients were initially] the Main Street firms with 10 to 20 employees,” Winget says. “But now, we’re starting to see more creativity and flexibility, as large clients came to the table and said, ‘How do I define this benefit? How do I make it the most competitive and attractive in the marketplace?’”
Winget says Gradifi, which helps employees pay down loans with personalized advice from Morgan Stanley advis- ers, has seen an uptick in employer matches to workers’ loan repayments, but cautions that those additional payments are most effective in reducing employee debt when allocated to only one loan, as opposed to allocating the employer con- tribution across multiple loan accounts. “The benefit contribution can be a ‘set it and forget it’ for the employee, but the real value you can bring to them as an employer is more resources,” says Winget. “We have so many different generations in the workforce...and [as an employer] you need to be able to address these unique individuals.”
While platforms like Betterment At Work and Gradifi can be a valuable part of that conversation, employees need to do their part to be prepared for monthly budgets that may look very different once the moratorium ends. “I cannot stress enough the importance of doing your research,” says Winget, who points out that loan servicers themselves can be another great resource for information, particularly for borrowers who are more recently out of school. “Stay on top of developments in the news. Know what types of loans you have, whether they’re federal or pri- vate, and what will happen to those loans when the morato- rium expires. And you can always pick up the phone and ask for assistance.”