With the end of the 43-month federal student loan repayment pause, education debt is once again taking center stage as a major financial stressor among employees nationwide. Workers aren’t the only ones feeling the pinch. Employers are facing the consequences, too. According to new data from the ADP Research Institute, the return to repayment will likely have an impact on employee retention.
While you might assume that workers with debt would want to keep their current jobs (and reliable paychecks), ADP found the opposite to be true: Employees with student loan debt are more likely to leave their jobs than those without student loans. Any level of student debt increases a worker’s intent to leave their current job. However, those with the most significant outstanding student loans were twice as likely to be looking elsewhere compared to those who had no student debt.
A worker’s perception of their student debt also played a big role. Those who considered their student loan debt a “heavy burden” were 2.4 times more likely to be in the process of leaving their organization, regardless of the actual loan amount.
The ADP data may be picking up on workers’ hope that they can land higher-paying jobs elsewhere. If workers act on their signaled intent, the end of the payment pause could lead to a labor market shift. Even if many of your workers look but don’t leave, ADP’s research highlights an important reality: Student debt repayment and management benefits may be more important than ever for recruiting and retaining employees.
The Burden of Student Debt and How Employers Are Responding
One in four of the country’s 129 million privately employed workers carry student debt. Pervasive student debt is a barrier to financial security for many employees. And, its impact is disproportionately felt by workers who are Black, Latinx, and women.
All told, about 43.6 million borrowers owe an estimated $1.6 trillion in federal student debt. The payment pause allowed 28 million borrowers to waive an estimated $260 billion in payments, according to the Federal Reserve Bank of New York .
Even before the pandemic, many employers focused on financial wellness and implemented benefits designed to help employees manage their education debt. When the end of the federal payment pause was in sight, some companies boosted those efforts. Here are a few examples:
• Athletico Physical Therapy Starting in January 2024, Athletico Physical Therapy, a national provider of orthopedic rehabilitation services partnering with SoFi at Work, will contribute $100 monthly each toward eligible employees’ student loan debt. This tax-free contribution is expected to help the average Athletico employee save as much as $16,000 on their loan after eight years and pay the loans off 20 months faster. The benefit is available to all employees, as well as new hires who work 30+ hours per week.
• Community Health Systems To battle the severe shortage of healthcare workers, Tennessee-based hospital chain Community Health Systems (CHS) announced it will expand employee benefits by $40 million per year to attract and retain employees. Included in that expansion is an employer-sponsored student loan repayment program designed to offset loan balances by up to $20,000 for most clinical employees. In addition, employees may consolidate their loans and possibly reduce interest rates through the program. CHS has also expanded a tuition reimbursement program that provides up to $5,000 in tax-free reimbursement annually.
• CoStar Group CoStar, a Washington, DC-based real estate data and research provider, is embracing a different student loan repayment benefit. CoStar will provide a company match to an employee’s 401(k) for workers paying off student loans. The maximum total retirement match is 4%, as long as the employee contributes at least 4% of their pay directly to the 401(k) OR student loan repayment.
• Kimley-Horn A premier engineering, planning, and design consultancy, Kimley-Horn, is taking its award-winning employee benefits to the next level in 2024 with the introduction of matching contributions into qualifying employees’ 401(k) plans based on their student loan repayments. Starting from January 1, 2024, employees will have the option to consider their student loan repayments to receive their four percent employer contribution. This enables employees to receive the company’s retirement match still while simultaneously making progress in paying off their student loans.
How to Implement Student Debt Benefits
These days, the question on many benefit leaders’ minds is not if they should implement student loan debt benefits but, instead, what is the best way to do so. Below are some tips on how best to manage your student loan repayment benefits.
Consider Student Loan Reimbursement
Under the Coronavirus Aid, Relief and Economic Security (CARES) Act, employers can contribute $5,250 annually per employee toward tuition reimbursement or student loan payments on a tax-exempt basis. The CARES Act provision was set to expire at the end of December 2020, but Congress passed the Consolidated Appropriations Act before that happened, extending the tax break through the year 2025.
Employers don’t have to pay the full $5,250. The average federal student loan payment is $503 a month, or $6,036 each year. Repaying even a small portion of these monthly payments is enough to impact your employees positively. As we saw above with Athletico, even seemingly small amounts can help employees save thousands of dollars in interest over the life of the loan.
You can start by offering a $100 or $200 monthly payment and increase the amount as you can. You could also offer different payments to different groups of employees. For instance, you might offer a lower payment amount to first-year employees than those who have been with your company for a few years. This incentivizes employees to stay at your organization, reducing employee turnover and saving on talent acquisition costs.
To determine the amount that works for your company (and is likely to help retain workers), do an employee survey to find out how many of your workers carry student debt and would qualify for a reimbursement. Look at your future hiring expectations to estimate the number of new employees likely to join the program. From there, you can determine how much your organization can afford to contribute to each individual.
Consider Student Loan Repayment as Salary Deferral for Employer Match into Retirement
The Secure Act 2.0, which became law in 2022, is designed to encourage more American workers to save for retirement. Beginning in plan year 2024, the Act formally authorizes matching contributions for student loan repayment, allowing companies to match employees’ qualified student loan payments with contributions to their retirement accounts, including 401(k)s, 403(b)s, SIMPLE IRAs, and government 457(b) plans.
Many HR leaders see the benefit as a significant win for employees. It allows them to pay down student debt while still participating in retirement savings, hopefully starting at an early age. It also benefits employers. Lowering debt and helping workers save for the future boosts the overall financial wellness of your workforce. Benefits managers, like those at CoStar, hope this benefit will help attract talent and retain employees who see their retirement savings increasing and student debt balances decreasing.
If you’re interested in implementing a similar program, here are a few rules to keep in mind: A student loan matching benefit must abide by all the rules of a traditional match, including eligibility criteria, matching contribution rate, and vesting schedule. However, there is one exception: You are allowed to deposit the matching contributions to the employee’s 401(k) plan account less frequently than regular matching contributions, as long as you contribute at least annually.
Recommended: The Future of Financial Well-Being in the Workplace
Rethink Your Tuition Reimbursement Program
Now may be a good time to reevaluate your tuition reimbursement programs or introduce this type of benefit. Tuition reimbursement helps employees avoid taking out large student loans in the first place. It also benefits employers in multiple ways: It helps employees gain new skills and knowledge they can apply at work and serves as a retention tool, since workers can take just a few classes per semester while continuing to stay on the job. Including a retention clause specifying they need to stay a certain length of time after completing classes can help you keep valued workers in your organization.
Some things to consider as you start or retool a tuition reimbursement benefit:
• Types of payment Generally, employees pay for their classes upfront and submit tuition reimbursement forms to their employers after successfully completing them, but this can be a barrier to participation. Consider paying for classes at registration or directly to the school, making it easier for employers to take advantage of this benefit.
• Tiered payment Some programs reimburse employees for a percentage of costs based on their grades. For example, an “A” might qualify for 100% reimbursement, a “B” would get 85%, a “C” might result in 75%, etc. Or, you might pay 100% only for classes with a passing grade.
• Types of courses Many employers pay for courses related to the employee’s career. Still, you might include classes that could help your workers pursue other positions in your company. The hospital system CHS, for instance, recently expanded its reimbursement program to include studies associated with any employment track at the organization, not just the employee’s current field.
• Institutions Many programs cover any accredited institutions, but a growing trend is for employers to enter exclusive partnerships with education providers.
• Service requirements You might specify a vesting period before qualifying for benefits and/or require employees to stay with the company for a certain period after completing the course in order to keep the funds.
The Takeaway
Benefits that can help ease the burden of student debt are important tools employers can utilize to recruit and retain talent and promote financial wellness among employees. This is especially important in light of new data that shows employees who feel they have a heavy student loan burden are far more likely to be in the process of leaving their organization.
SoFi at Work can help. We’re experts in the student lending space. With SoFi at work, you have access to platforms and information that will help build the benefits you need to create a successful and loyal workforce.
FAQ
Are employees changing jobs because of student debt?
They may be looking to do so. Although it might seem counterintuitive, new research shows that employees with perceived heavy student debt burdens are more likely to be job hunting than their peers with lighter or no debt burdens.
What can employers do to retain employees with student debt?
To support employees with student loan debt and improve their intent to stay, consider offering a student loan repayment contribution program and/or matching 401(k) contributions for student loan repayment.
How many employees are struggling with student debt?
That number will depend on your workforce demographics, but about a quarter of privately employed workers in the U.S. carry student debt.
Photo credit: iStock/SrdjanPav
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