By Susan Tompor
Detroit Free Press
WWR Article Summary (tl;dr) As companies try to hire millennials in a tight labor market, they’re adding a new perk for workers who are juggling student loan payments.
Detroit Free Press
Jamie Cummings, 41, faces $93,000 in student loans, the kind of college debt that could keep anyone awake at night.
“It’s so overwhelming, knowing that my last payment will be when I’m 65 years old,” said Cummings, a customer service manager for the Carhartt in Dearborn, Mich.
She’s paying $450 a month, roughly a car payment, just to deal with her student loan debt from her undergraduate and master’s degrees from Eastern Michigan University. She borrowed to study to be a teacher.
Thanks to the interest that keeps building on her loans, the amount she owes has grown since she obtained her master’s degree in communications in 2008.
“I had to pay for my books. I had to pay for my housing. My parents were not in any position to assist,” Cummings said.
So she was absolutely thrilled when her company, Carhartt, maker of sturdy jackets for construction workers and fashion-trendy rappers, including Kanye West, started telling workers in May that it had their back when it came to paying off college debt.
Carhartt will pay $50 a month up to $10,000 to help its eligible part-time and full-time workers worry a little less about their student loan debt. Employees have to be with the company at least 30 days, if non-union, or 90 days, if in a job represented by a union.
As companies try to hire millennials in a tight labor market, they’re adding a new perk for workers who are juggling student loan payments.
Industry experts say more companies are likely to roll out student loan-related benefits in 2019, too.
“A lot of employers are trying to make sure they are competitive as a place to work,” said Asha Srikantiah, vice president of emerging workplace products for Fidelity’s Student Debt Program.
Fidelity Investments offers eligible employees with more than six months of tenure $2,000 a year toward their student loans, up to $10,000 total.
Fidelity is also working with about 40 other employers to offer student loan-related benefits, including Hewlett Packard Enterprise, the Options Clearing Corp., Ariel Corp., New York Air Brake and Millennium Trust.
In 2015-16, the most recent data available, 10.5 percent of bachelor’s degree recipients graduated with $50,000 or more in college debt, according to Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com.
About 0.5 percent graduated with $100,000 or more in student loans. That’s counting both federal and private student loans but excluding Federal Parent PLUS Loans.
The amount owed grows over time, of course, especially if some income-driven payment plans are used to make those initial payments more affordable. Interest keeps building, and employees grow increasingly worried about how long it can take to pay off student loan debt.
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Helping with student loans can help hold onto workers
Companies, which may have high turnover in their workforce, want to engineer a way to offer a student-loan fix and hold onto those workers.
About 86 percent of employees say they’d stay with a company at least five years if their employer helped pay down their student loans, according to a survey by the advocacy group American Student Assistance. The survey also indicated that nearly 65 percent said they may seek a second job to help pay off their loans.
Industry experts say student loan debt, which totals $1.5 trillion nationwide, has a real impact on recruitment, retention, the ability to save for retirement and overall productivity.
In June, Illinois-based Abbott announced what it calls a “Freedom 2 Save” program that would enable workers who are contributing 2 percent of their eligible pay toward student loans to receive the company’s 5 percent match into the 401(k) plan.
The global health care company, which has a facility in Sturgis, Mich., and recruits at universities in Michigan _ said it has already signed up hundreds of employees for the student loan benefit.
“It gives millennials who aren’t saving for retirement a lot more flexibility,” said Ellen Wichman, a spokeswoman for Abbott.
Abbott has hired more than 1,000 people under age 35 last year in the United States, and the majority had college degrees.
Yet she said the program isn’t just helping young people who are fresh out of college, as many existing workers are dealing with student loans, too.
Nationwide, about 6.8 million borrowers ages 40 to 49 owe on average $33,765 each in student loans.
Studies indicate that consumers on average have more than $37,000 in student loan debt and they’re taking 19.7 years to pay off debt built to pay for a bachelor’s degree.
Abbott said it did not want student loans to prevent employees from beginning to save for retirement when they’re young.
Abbott’s program applies to the employee’s own student loans, not any student loans that parents might be paying off for their kids.
Employers get creative with student-loan benefits
“We’ve seen an onslaught of very innovative new plan designs,” said Scott Thompson, CEO of Tuition.io, a California-based platform for employee student loan contributions.
One large, well-known employer is expected to launch a plan in January that would allow employees to decide if they would want a 6 percent contribution from the company to go toward their 401(k) or their student loans. The company will no longer offer matching contributions in the 401(k) for employees to contribute to the plan, Thompson said.
He declined to name the company.
About 50 percent of employees at that company did not take advantage of the match anyway, he said, so the 6 percent soon will be offered whether employees contribute any money or not.
Another company, Thompson said, is expected to announce a plan where workers who contribute some of their money to the 401(k) would receive matching money that could go toward the 401(k), student loans or a mix of the two.
Thompson said his company is in talks with some employers in the auto industry, too.
Two employers, who he declined to name, currently match up to $350 a month on student loan payments. That money is applied to the principal.
More often than not, Thompson said, younger workers are less worried about what they’ll do in retirement 30 or 40 years from now.
They’re saying, he said, “help me with what I’m struggling with today.”
Employers who offer such plans require employees to be current on their student loans in order to receive any benefits. The benefit may be viewed as taxable income, though.
Thompson said it’s essential to begin to chip away at the principal.
“Any principal you remove today doesn’t have interest calculated on it tomorrow,” he said.
Tuition.io is working with Carhartt to implement its student-loan benefit program, as well as other employers, including Staples, the City of Memphis, the Iowa Farm Bureau, FreddieMac, and Gale.
We’re likely to hear more about student debt-related benefits connected to 401(k) plans in some way, as well.
In August, the Internal Revenue Service issued a private letter ruling on one employer’s strategy to address student debt through its 401(k) plan. Abbott is not mentioned but many in the industry assume the letter refers to Abbott’s changes.
After that ruling, an employer organization, the ERISA Industry Committee, sent a letter to the IRS seeking to broaden that decision in the private letter to all qualified plans.
Thompson said employers are increasingly interested in tackling the student loan issue because they’re realizing that often 30 percent to 35 percent of their workforce must pay off student loans.
Many times, employees face $40,000 or $50,000 or more in student loans. Their student loans can add up to half or more of their annual pay in some cases.
The problem, he said, is a function of the rising cost of higher education, as well as limited starting salaries at many companies. The cost of living in many communities has skyrocketed, as well, putting pressure on what bills must be paid immediately.
Student loan debt itself often isn’t cheap with many borrowers facing blended rates on their variety of loans at 6.5 percent or so, he said.
What many people might not realize, Thompson said, is that the savings over time can be significant. In some cases, borrowers with college loans in the $90,000 range can save roughly $14,300 in interest and principal, and cut 19 months or so off their repayment, simply because an employer is paying $50 a month toward their student loans, he said.
In some cases, borrowers might qualify for student loan forgiveness under certain conditions. But the rules are complex and many people, don’t qualify.
Under income-driven repayment plans for federal student loans, for example, a borrower who does not work in a public service job could see loans forgiven after 20 years to 25 years of making regular payments in the plan, depending on the program.
Under the federal Teacher Loan Forgiveness program, if you teach full-time for five complete and consecutive academic years in a low-income or educational service agency, and meet other qualifications, you may be eligible for forgiveness of up to $17,500 on your Direct Subsidized and Unsubsidized loans.
Cummings said she doesn’t qualify for student loan forgiveness, so having help from her employer is even more important.
Workers say they’re thrilled to get extra help
Jennifer Piscopink, senior vice president of human resources for Carhartt, said the student loan program fits into the company’s focus on financial wellness for employees.
“The part that has amazed me is the emotional reaction people have toward this benefit,” Piscopink said.
“They’re thrilled with it. And they’re thankful. They’re almost humbled by the fact that the company would do something like this because it’s so out of the ordinary,” she said.
Since May, Carhartt has seen 204 associates sign up for the student loan benefit. Carhartt currently has more than 2,100 U.S. associates.
Going forward, the company plans to evaluate requests from employees who are parents and took out student loans on behalf of their kids. Right now, the Carhartt benefit doesn’t apply to the federal PLUS loans for parents. But the apparel company is considering whether it would expand that benefit in the future.
Piscopink said she has heard from other human resource managers who are interested in offering such a benefit at their companies, too. She believes assisting employees with payments on student loans improves employee engagement and can help retain workers.
Cummings is on a graduated payment plan where payments will go up in future years but it’s still a lot of money. When Carhartt adds $600 extra a year, she said, she’s able to chip away at the principal and reduce the amount of added interest in the future.
Cummings agreed to make lower monthly payments on her student loans now because she and her husband have two children, Mason, 11, and Owen, 8. Her minimum monthly payment would be significantly higher now, perhaps by a few hundred dollars, if she didn’t take a graduated payment plan.
“Life gets in the way,” said Cummings, of South Lyon.
Even so, the family’s strategy does include setting aside money now in 529 plans so the children will be able to better control their college debt.
“I do not want my children to have to leave college with the enormous debt I have,” she said. ___
ABOUT THE WRITER
Susan Tompor is the personal finance columnist for the Detroit Free Press.