Each year, a new crop of Millennials graduate encumbered by an average of $30,000 of student loan debt. While not all recent graduates have student loan debt, about 70% do with 1.1 million having over six figures of debt.
Not surprisingly, this debt causes borrowers a significant amount of stress. A recent study by the American Psychological Association showed that Millennials are the most stressed demographic with 73% of them being stressed about money.
But student loans are not just a Millennial problem. Student loans are a growing issue across all demographics. More than 43 million Americans owe $1.2 trillion on student loans making it our nation’s second largest class of consumer debt after mortgages. According the New York Fed, everyone is struggling with student loan debt. More than 17% of our country’s outstanding student loan debt is held by individuals over the age of 50 and individuals aged 30 to 49 hold 51% of outstanding student loan debt.
Older Americans are particularly struggling to pay off their debt. In a report from last year, the U.S. Government Accountability Office (GAO) found that more than 27 percent of federal student loan borrowers age 65-74 are in default, and 54 percent of federal student loan borrowers age 75 and older are in default. Many of these older borrowers have poor credit and don’t qualify to lower their interest rate through refinancing.
We are in a student loan crisis.
How Some Employers Are Helping
Last month, PricewaterhouseCoopers announced its plan to help the company’s 22,000 junior level employees make extra principal payments by providing $100 per month for up to six years. That’s $1,200 per year and $7,200 in total.
While $100 per month might not sound like a lot, extra principal payments in any amount can really add up when it comes to student loans. Student loan interest rates range from 3% to 14%. That means that borrowers with private student loans can save a lot.
PricewaterhouseCoopers should be commended for their move to help their employees- but their decision to begin offering a student loan payment benefit isn’t entirely altruistic. It’s a smart business decision.
PricewaterhouseCoopers hires more than 11,000 students each year through campus recruiting. To get the best candidates, it’s essential that they differentiate themselves from the other booths at the career fair. Student loan repayment assistance plans are more attractive to indebted Millennials than gym benefits, game rooms, pet sitting, and all the other new perks offered these days. Young recruits are also likely going to be more interested in paying off their student loan debt than in 401k contributions.
It Could Solve the Retention Problem
Recruiting is the most obvious benefit to companies who offer student loan repayment assistance, but retention might turn out to be the biggest selling point to executives. According to Gradifi, the company helping PricewaterhouseCoopers manage its plan, U.S. businesses lose $11 billion annually due to employee turnover.
Employee turnover is an especially troubling problem for firms like PricewaterhouseCoopers that hire a significant number of millennials. In fact, 45% of PricewaterhouseCoopers’s U.S. employees are junior level and have graduated in the last five years.
During those first few years of employment turnover is very common. Student loan repayment assistance plans might help executives encourage their employees to stay longer.
It is too soon to tell, but the added costs of creating an employee student loan repayment assistance plan might be paid for by the savings generated from less employee turnover. An employer might even consider putting a benefit plan in place which scales as employee tenure increases.
Other Companies Are Stepping Up
PricewaterhouseCoopers isn’t alone, nor are they the first company to announce student loan repayment benefits. Earlier this year Chegg, the online textbook rental and homework help giant, announced that it would help its employees beat their student loan debt through a plan called the College Loan Reduction Plan.
Under the plan, Chegg employees will receive $1,000 annually towards paying down student loan debt. Chegg has partnered with Tuition I.O., a competitor of Gradifi, to implement the plan.
In the press release announcing the plan, Chegg CEO Dan Rosensweig said “With any luck, other companies will soon follow our lead.”
A Call to Action
We too hope that many more companies follow Chegg’s and PricewaterhouseCoopers’ lead. Student loan repayment assistance benefits are an attractive recruiting and retention tool for everyone young and old.
Student loans are a mounting problem and it doesn’t look like the federal government is doing anything serious about them any time soon. There are solutions in the private market, however. If you are a qualified borrower looking to consolidate your loans, then you could try private student loan refinancing. Qualified borrowers stand the best chance at reducing their interest rate through this method, but keep in mind that you’ll be giving up all federal benefits.
Student loan repayment assistance benefits are currently taxable but I’d love to see Congress support student loan borrowers and make employer student loan contributions tax-free. Let’s reward corporations looking to help employees with student loan debt and help borrowers.
Author: Dave Rathmanner
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