Taking a Bite Out of Student Loan Debt
To get a good job and earn a good salary: stay in school, go to college, and get a degree. So goes the conventional wisdom, and the research bears this out. Countless studies have shown that individuals with college degrees will earn more money over the course of their careers than those without a degree.
But the numbers also show that for many, the degree comes with a mountain of student loan debt that will take a good portion of their careers to pay off.
From the Class of 2017, some 70 percent graduated with student loan debt, and the average debt per graduate was $37,000. In total, some 44 million Americans are carrying nearly $1.5 trillion in student loan debt, which is more than all outstanding credit card debt and second only to mortgage debt.
While this mountain of debt seems insurmountable, a growing number of companies are starting to help by offering student loan repayment assistance to their employees.
These programs typically work like 401(k) retirement plans where the employer will match the employee’s payment toward the loan up to a certain limit. One of the pioneers in this area has been Aetna, which began offering this benefit at the start of 2017.
At the time, Aetna already had a well-established financial wellness program that had been in place for about ten years, according to Kay Mooney, VP of Workforce Well-being and Inclusion at Aetna.
Through this program, Aetna offers several vital resources to employees including free financial counseling with an unbiased certified financial planner, webinars and in-person seminars, and an online financial wellness assessment to help employees understand where they are in their journey.
Based on feedback from this program, as well as the increasing number of stories in the news, Mooney said, “we realized that student loan debt had become a problem not only for the economy in general but also for our employees.”
At this point, adding the Student Loan Repayment Program made sense. One of their existing benefits vendors was able to provide all administrative support for the plan, making it easier to roll out once they had decided to jump in, said Mooney.
Through Aetna’s Student Loan Repayment Program, the company will match qualifying student loan payments for eligible, active employees. To qualify, employees must be in good job standing, according to their last performance review, and must have earned the degree within three years of applying for the assistance program.
For full-time employees, the matching loan payments are up to $2,000 per year, with a lifetime maximum of $10,000. For part-time employees, Aetna matches up to $1,000 per year with a lifetime maximum of $5,000.
Not surprisingly, the program has been well received, with about 1,000 employees now participating. Mooney said it’s been effective for both attracting new candidates to the company, including college interns, as well as retaining existing staff.
“We’re seeing this as a recruiting as well as a retention tool for Aetna. Our recruiters and university relations partners were thrilled to hear about our plans to launch this benefit,” she said.
It has also allowed many employees to focus on other aspects of their financial health. “We hear from employees that their student loan debt has made it hard for them to even think about saving for retirement. In helping to reduce their debt, they can see the light at the end of the tunnel and in turn their focus to their 401(k) and Health Savings Account savings.”
For employees who don’t qualify, Aetna offers other forms of assistance. “Employees who are not eligible for the Student Loan Repayment Program can still take advantage of free advising sessions to help them develop strategies for paying down their balances in the most efficient way or to assess whether refinancing their loans would be appropriate,” said Mooney.
It’s still the early days for these student loan assistance plans. Only about 5 percent of companies currently offer such a benefit, according to estimates from the Society for Human Resource Management.
But there is certainly strong demand among job seekers, especially among millennials who now make up the largest portion of the workforce. In a survey by the American Student Assistance, three-quarters of respondents said that if a prospective employer offered a student loan repayment benefit, it would be a deciding or contributing factor to accept the job.
Where these plans differ from a 401(k) is in the tax implications. For the employee, matching payments made by the employer toward the student loan are considered taxable income. For the employer, these payments are not considered pre-tax deductible.
That could change pending legislation currently in Congress. The Employer Participation in Student Loan Assistance Act (H.R. 795) was introduced in February 2017 by a bipartisan Congressional group and now has 50 co-sponsors.
Under this bill, an employee could receive up to $5,250 per year in employer student loan assistance tax-free, which is how employer tuition assistance payments are now treated. As of July 2018, this bill is still with the House Committee on Ways and Means.
In the meantime, Aetna will continue to offer this assistance to its employees, and the company is anticipating roughly a 10 percent increase in participation this year, as word of the benefit continues to spread, according to Mooney.
Employees who are still early in their careers as well as those pursuing additional educational goals while at Aetna have been really excited about the program, said Mooney. “They felt that Aetna was deepening its commitment to their financial well-being and investing in their career growth by helping to reduce their debt and allowing them to make other financial decisions that they’d been putting on hold.”