More Companies Are Helping Employees With Student Loans, Rather Than Just Paying Them More
Health care. Dental insurance. A 401(k) plan. Gym membership. Student loan repayment?
As the nation's total student debt crosses the $1.3 trillion mark, some industry analysts believe that one of the more enticing company perks of the future lies in employers helping their young workers chip away at their loans.
As of July, consulting behemoth PricewaterhouseCoopers, one of the largest private companies in the United States, will be offering $1,200 a year to employees to help pay down student loans, up to a total of $7,200 over the course of six years, according to Bloomberg News.
Natixis Global Asset Management, a French financial services company, announced this week that will offer its employees a maximum of $10,000 for paying down student loans — $5,000 on a worker's five-year anniversary, and another $1,000 per year for the following five.
The concept is still fairly new. In a survey of 450 firms, the Society for Human Resource Management found that just 3% of companies offer student loan repayment as part of their benefits package. But according to Bloomberg, SHRM's manager of compensation and benefits says that the statistics are "understated" because there is "pent-up demand" — he suspects it's "the beginning of a trend."
Widespread adoption of this benefit would make it look like corporate America really cares about millennials and is eager to help them get out from under the crushing burden of student debt. But don't believe the hype.
Why it's happening: Employers make a range of choices about benefits that affect the quality of workers' lives in ways that couldn't be delivered through a higher salary. For instance, the quality of an employee's health care plan is largely determined by which plans the employer decides to offer. Companies with 401(k) matching benefits inject money into a retirement account that only an employer can sponsor, and through an allocation system that that results in a lower eventual tax burden for the employee.
But packages offering money to help workers pay down their student loans are essentially a marketing ploy. There's nothing about company benefits that go toward paying student loans that makes them more valuable than an equal increase in salary. Natixis Global Asset Management's offer to provide a large lump sum of $5,000 after five years is just a retention bonus in the guise of special concern for young people.
The heart of the matter is that this is mainly an issue of optics, a clever recruitment tool when reaching out to certain demographics — young, debt-saddled people — and an incentive system to retain them. The calculation by these companies is that a $50,000 salary, plus a special debt reduction package worth $1,000, is more attractive than a $51,0000 salary, even though the latter allows employees more flexibility to spend their money as they see fit.
As the economy continues to strengthen, employers are going to have to do more to edge out their competition and retain talent. Creating a workplace atmosphere of seemingly individualized attention to an employee can be an effective strategy for doing so.
Incidentally, it's also an effective way to protect a company should things go south: It's easier to cut employee benefits than it is to reduce their salaries if a workplace is in dire straits financially.
Not the solution: As bad as the student debt crisis is — the average undergraduate student who borrowed money for their degree this year graduated with about $35,000 in loan debt — the ones who need help the most badly are not going to generally be up for the kinds of highly competitive jobs that offer student debt repayment packages. A majority of borrowers defaulting on their student loans and having their credit ruined are not people who are drowning in huge piles of debt, but people having trouble simply making money at all. They skew low-income, and being harassed by loan servicers is often only one of many problems that accompany their financial hardship.
Ultimately, employer marketing gimmicks are not the right place to find solutions to the student debt crisis. The big policy solutions required to mitigate it — whether through allowing borrowers to refinance their loans at lower interest rates, more robust forgiveness plans or simpler income-based repayment options — will only come about through federal legislation.
If your company says they're considering student debt repayment benefits, politely ask for a higher salary instead. And if you can afford it, you might be better off donating some of the extra money to a politician or an organization that says that your student loans shouldn't be playing such a big role in how you live your life.