Medical, Dental, 401(k)? Now Add School Loan Aid to Job Benefits
Your Money
By TARA SIEGEL BERNARD MARCH 25, 2016
Every month, Amanda Danner and her husband make what feels like a mortgage payment. But they don’t yet own a home.
Instead, they pay nearly $2,000 simply to service their student debt. Their next-largest monthly expense is the rent on their apartment in Union City, N.J.
“It’s a rough reality,” said Ms. Danner, a 26-year-old analyst for Fidelity, who graduated from Montclair State University with $85,000 in loans, more than double the national average. “We definitely want to buy a house in the near future, and we certainly want to have kids in the next couple of years,” she added. “But when you look at the initial monthly payments, it is staggering. It is hard to plan for the future.”
So she said she was thrilled to learn of a new perk that her employer made public last week: Fidelity will apply up to $2,000 annually to the principal of its employees’ student debts. In Ms. Danner’s case, that will shave four years off her repayment period, bringing it to roughly eight years from 12.
Fidelity is one of the more prominent employers to announce the student loan repayment benefit in recent months, a policy that seems likely to gain traction. The benefit helps address what some employers describe as a challenge attracting and retaining younger workers, many of whom can’t see beyond the burden of their student debt. Most employers that are offering the new perk also cap their costs at, say, $10,000 total per employee.
Beyond Fidelity, a variety of organizations — including PricewaterhouseCoopers, Natixis Global Asset Management [www.businesswire.com/news/home/20151208006325/en/Natixis-Global-Asset-Management-Launches-Student-Loan]and Nvidia [www.nvidia.com/page/home.html] — have already either announced plans or started offering the payments. Several smaller companies — LendEDU, CommonBond, SoFi, Chegg and ChowNow — are also providing the benefit. The federal government, however, may be the pioneer here, having offered a repayment program to select employees for many years.
And the list is growing. The handful of companies that administer the benefit behind the scenes — Tuition.io, Gradifi and EdAssist among them — said demand was rising. Tim DeMello, Gradifi’s chief executive, said his firm was in talks to bring about 100 more employers aboard this year, and has signed 26 letters of intent.
While this is all welcome news, the benefits are just another symptom of the underlying problem: Tuition has been rising faster than wages and inflation for decades, according to the College Board [trends.collegeboard.org/content/average-rates-growth-published-charges-decade-0]. But now that younger workers — or those born from about 1981 to 1997 — have surpassed Generation X as the largest share of the American work force, according to a Pew Research Center analysis [www.pewresearch.org/fact-tank/2015/05/11/millennials-surpass-gen-xers-as-the-largest-generation-in-u-s-labor-force/] of Census Bureau data, it appears that employers are beginning to hear their concerns.
Retirement benefits, even incredibly generous packages, did not resonate with younger workers at Fidelity. Nor did potential recruits find them tantalizing. Yet Fidelity happens to have a 401(k) match that made this Gen X-er’s mouth water: Workers who contribute 7 percent of salary receive a match of 7 percent, for a total of 14 percent. And if the company performs well, it will sweeten that with profit-sharing of up to 10 percent more — for a total of, yes, 24 percent of salary. That’s retirement [topics.nytimes.com/your-money/retirement/index.html?inline=nyt-classifier] savings made easy.
But for younger workers, the dead weight of their student debt eclipses all else. “We were surprised to hear, loud and clear from employees and their managers, that a key concern was student loans,” said Jennifer Hanson, head of associate experience and benefits at Fidelity. “It was more acute than we realized, and we heard people were putting off real-life transitions — buying a home, getting married, having a baby. Given that we are all about planning, guidance and saving for the future, it was a real issue.”
So after speaking with employees, Fidelity decided it wanted to be seen as a trailblazer, largely to attract and retain talent. At the same time, the company more than doubled its paid parental leave policies (to 16 weeks for new mothers, and six weeks for all parents).
Under the student loan repayment program, Fidelity will apply up to $2,000 a year — or nearly $167 a month — toward an employee’s student loan principal, up to $10,000 total. More than 5,000 employees, or about 11 percent of its work force, have signed up since January. Tuition.io, a company based in Santa Monica, Calif., collects the payments and sends them directly to the loan servicers. It also gives workers guidance on which loans to pay off first.
“I can’t make predictions,” said Betsy Dill, a partner and leader in the wellness advisory practice at the consulting firm Mercer. “But if I could, I would say based on the level of interest, I think we are going to see more” repayment programs.
There are several pieces of federal legislation, in various stages, that could encourage more employers to help chip away at their employees’ student debts. Right now, an employer’s contribution to the student loan is taxed as income to the worker. That makes it less valuable to the employee (or the employer has to contribute more money to provide, say, an after-tax benefit of $100 a month). Fidelity, for instance, wanted to provide at least $100 monthly on an after-tax basis, so it contributes $166, which works out to $120 a month for workers who pay the most taxes.
But several bills would make the perk tax-free, up to certain limits. Other bills would go further, enabling employees to make their own payments on a pretax basis, up to a certain ceiling.
One proposal [scottpeters.house.gov/media-center/press-releases/congressman-scott-peters-re-introduces-bill-to-lower-student-loan-burden], introduced by Representatives Rodney Davis, Republican of Illinois, and Gwen Graham, Democrat of Florida, would let workers receive up to $5,250 in tax-free payments annually, which is on par with the existing benefit for employer tuition reimbursement. There’s a companion bill in the Senate, introduced in January by Senator Mark Warner, Democrat of Virginia.
Elements of the benefit appeal to policy makers on both sides of the aisle, though it has not yet gained widespread support. “Republicans like employers and tax cuts and Democrats like education, and an exclusion from income for employer-paid student loan repayment assistance lies at the intersection of the two,” said Mark Kantrowitz, a student loan expert and publisher of Cappex.com [www.cappex.com/], a college comparison site.
The financial impact for workers can be substantial. Consider an employer that contributes $100 a month to an employee — with a maximum benefit of $10,000 — who is paying off a $35,000 debt with a 6 percent interest rate over 10 years. That would save the worker at least $2,213 in interest, and shave 2.5 years off the repayment period, according to calculations by Tuition.io.
But that doesn’t necessarily mean workers should focus solely on paying their loans at the expense of retirement savings. If an employer is offering a match on 401(k) contributions, the no-brainer advice is to take it. “The match is free money,” said Daniel Wrenne [www.wrennefinancial.com/], a financial planner in Lexington, Ky., who specializes in helping physicians and other highly indebted graduates.
The repayment programs themselves vary across employers. But Brendon McQueen, chief executive of Tuition.io, said that many employers were offering it to all employees. After all, there’s a swath of workers who are entering retirement with student loans and plenty of working parents who have taken out loans for their children.
There are restrictions, however. Natixis, for example, makes the perk — up to $10,000 total — available to all employees who have been with the company for at least five years, but only on their federal loans. PricewaterhouseCoopers offers the benefit — up to $10,000 — only to more-junior employees. Nvidia, a computer graphics company, extends repayment to employees who graduated within the last three years, up to $30,000 total.
But some employers may also begin to give workers a choice of how to deploy a benefit of, say, $100 a month. Maybe it’s dedicated to a gym membership, a health savings account or to a student loan payment. “I think you will start to see more of that, where they are giving the option to pick one of three,” said Mr. DeMello of Gradifi.
If that’s the case, here’s a suggestion for the often-forgotten middle child, the Gen X-er who worries about paying a child’s college tuition: A $100 to $200 monthly contribution to a 529 plan would be most appreciated, thank you very much.
From www.nytimes.com/2016/03/26/your-money/medical-dental-401-k-now-add-school-loan-aid-to-job-benefits.html 25 March 2016