Employers help pay student debt to lure workers
For four years, Emily Willer has worked to pay down student loans from her time at the University of Michigan. But she still has $10,000 to go.
So when she heard that her employer would help pay off those loans, the 26-year-old Carhartt sales operations specialist from Royal Oak enrolled immediately.
Willer is one of more than 180 Carhartt employees who are taking advantage of the $50 monthly contributions up to $10,000 that the Dearborn-based workwear retailer began offering in June. The program has shortened their student loan payment schedule collectively by 68 years, the company says.
"It's one less thing to worry about," said Willer, who graduated in 2014. "It's nice knowing that's going to be building up. It's $50 I can put toward groceries or different things like that, so I don't have to worry too much."
Carhartt is one of the first companies in Michigan to offer student loan repayment benefits, but it joins a growing number of U.S. employers such as First Republic Bank, Hulu, Staples and the federal government who are using it as a tool to recruit and retain the top talent during a competitive time of low unemployment. Just 4 percent of employers offered this benefit in 2016, according Willis Towers Watson, a global advisory and brokerage firm; by the end of this year, that number is expected to grow to 28 percent.
Tuition.io, the Santa Monica company assisting Carhartt with its loan repayment transactions, has doubled its clientele in the past year.
Tuition.io CEO Scott Thompson said employers use the benefit to stay competitive in the labor market. "Employees are thinking, 'I have student loan debt. I’m broke. If I don’t make more money, then I need to leave to get rid of this debt more quickly.'"
Jennifer Piscopink, senior vice president of human resources at Carhartt, said the student loan repayment helps fill out the company's benefits package to meet employee needs at different stages of life.
"There is a war out there," she said. "Any candidate coming is looking for unique benefits. We’re looking to meet associates where they are in their life journey."
More than 44 million Americans have student debt that altogether is worth nearly $1.5 trillion. WalletHub, a personal finance website, ranked Michigan as the No. 7 state with the most student debt; the average balance of a loan at graduation is $30,852.
American Student Assistance, a nonprofit focused on helping students pay for college, reported 86 percent of employees said they would stay with a company for at least five years if their employer helped pay down their student loans.
How much employees gain from the repayment programs depends on the employer. The most popular offering from Fidelity Investments, which operates a service to facilitate tuition repayment benefits, is $100 per month, though some companies go up to $700 per month. Some employers limit the offering to certain positions or locations.
PricewaterhouseCoopers, a London-based professional services network with a Detroit office, began offering $1,200 a year toward student loans up to $10,000 — which can shorten the payoff period by up to three years. Eight-thousand employees have enrolled since 2016.
Mike Fenlon, PwC's chief people officer, said the program has helped with recruitment: The company found that the benefit is known among many university faculty members and parents of college students. He said it also plays an important role in the company's diversity initiatives, as minorities tend to be saddled disproportionately by student debt.
"I think this is an example of how employers have to innovate, not just their business models, but their employee experience and their benefit packages," Fenlon said. "The world is changing, and this is a benefit that not that long ago we wouldn't have imagined. When you listen to employees, their wants and needs, you realize this is a big societal issue."
Amy Hollis, CEO of Hollis Consulting Inc. and former researcher at Wallis Towers Watson, said as health care expenses rise, employers may use other benefits such as student loan repayment to offset increases there. Since the contribution goes to the loan's principal, it reduces the interest employees are paying in the future.
"It's a bigger bang for your buck," Hollis said. "Reducing the actual total interest of the loan, that's hard dollars."
The benefit, however, is counted as taxable income. Unlike the tuition reimbursements for continuing education that are offered in many workplaces, there is no tax incentive for student loan employer contributions, though there are bills in both the U.S. House and Senate that could change that.
Fidelity Investments in 2016 began working with Tuition.io to offer $2,000 in loan repayments per year to its own employees, up to $10,000. More than 8,900 Fidelity employees have received the benefit, saving $22.5 million in principal and interest and shaving off 34,625 collective years of loan payments. Due to the "overwhelming" response and interest, said Asha Srikantiah, Fidelity's vice president of workplace emerging products, it launched its own program that now serves 25 employers.
Although most beneficiaries of these programs are recent college graduates, many middle-aged workers who have taken out loans in their name to fund their children's education are reaping the benefits, too. According to the Urban Institute, an economic think tank, Americans older than 50 collectively hold $247 billion in outstanding federal loans, an amount that has grown three-fold since 2003 — more than any other age group. More than 7 percent of student-loan borrowers in Michigan are 50 or older.
Over the past 18 months, Gradifi, a company that facilitates contributions from employers such as PwC, expanded its service from 50 clients to 400. Meera Oliva, chief marketing officer at Gradifi, expects that to grow.
"For a relatively small contribution," she said, "you're making a difference that puts them closer to saving for retirement, having a home, saving for a family and having some freedom."
Oliva believes that within a few years, employees are going to expect student loan repayments.
"You should look to be a leader and a innovator, while it differentiates you," she said. "That’s the company that will benefit from it the most."