In the Debt Crisis, Employers Offer Student Loan Paydown
Lifelong learning is a habit many successful leaders practice, but employees may struggle to find the time, money and support to pursue higher education. Additionally, existing loans, low pay and long hours create serious financial stress—which not only impacts employees’ personal lives, but their professional ones, too.
Aetna CEO Mark Bertolini found out just how much financial stress was hurting the company’s employees about three years ago during site visits at Aetna locations across the country. There was a common refrain from employees that they were struggling to make ends meet, says Kay Mooney, vice president of employee benefits and wellbeing at Aetna.
“They’re financially stressed, and they’re not able to give 100 percent to their job because they’re worried about how they’re going to pay their bills,” Mooney says.
Aetna sought to address this concern by implementing a social compact in 2015 as a way to invest in its employees, connecting their treatment to its larger mission of building a healthier world and effecting positive change in community health. Mooney says the first incentive in that compact was a company-wide minimum-wage hike to $16 an hour. Though it was a great first step, Aetna wanted to dig deeper.
“If five to 10 years down the road our employees are still only earning $16 an hour, we’ve failed them,” says Mooney.
After bringing in third-party vendors to analyze employee demographics, Aetna decided to strengthen its tuition-assistance program and offer a student-loan-repayment program. Experts say such initiatives—as long as they align with a company’s culture—can lessen financial burden on employees. This, in turn, can pave the way for increased productivity and better business outcomes, and also enable companies to embrace corporate expectations for social responsibility.
“In the end, we looked at it this way: When our employees are struggling, we’re struggling,” Mooney says, “because they’re not focused on their jobs or focused on our customers. When they thrive, we thrive.”
Show Me the Money
Aetna brought in Bright Horizons, a provider of employer-sponsored child care, early education and work/life solutions, to help assess the challenges employees were facing when it came to furthering their education. The two top concerns—time and money—weren’t surprising, says Mooney.
“From an affordability perspective, it was really two-fold,” she says. “The first is the risk of incurring student-loan debt … . How do we help our employees get an education without incurring debt? The second one is the inability to pay upfront costs.”
Concerns about time and money go hand in hand for many Aetna employees. Approximately 36 percent of employees earn less than $50,000 a year, and 75 percent of these earners are female—a significant portion of whom are single moms, for whom lack of time is a huge barrier, Mooney says.
From these data, Aetna created an education-benefits objective: to help employees get the skills they need quickly at a price they can afford and in a way that fits into their busy lives.
First, Mooney says, the company looked at its current employee tuition-assistance program, which was created in 2011 and offered an 80-percent benefit—up to a $3,000 annual cap—for degree progress. In 2013, the company upped the amount to $5,000 because of the inflation rate of college education. Two years later, the social compact was born; in addition to the minimum-wage increase, the compact promised to enhance employee benefits, empower employees through wellness programs and provide education assistance.
In 2016, Aetna began covering non-degree programs and formed partnerships with Capella University and College for America for alternative-learning programs. The following year, employees participating in the ETAP would receive 100-percent coverage, up to the $5,000 annual cap (or $2,500 for part-time workers), for eligible expenses associated with degree or job-related college courses, certificates and certifications. Aetna also launched its student-loan-repayment program in 2017. The company matches student-loan payments up to $2,000 a year, for a lifetime max of $10,000 for full-time employees. Part-time employees are eligible to receive up to $1,000 a year, with a max of $5,000.
“When we think about it, if an employee struggles with financial stress, that impacts the quality of their work,” Mooney says. “If employees are healthy and happy, they’re more productive and engaged and can better focus on our customers. It helps them, and it helps us. It’s a win-win.”
Beyond helping Aetna employees, she adds, student-loan-repayment programs also contribute to the economy.
The stats are bleak: Americans currently owe approximately $1.4 trillion in student-loan debt. “What’s that doing to our economy?” Mooney asks. “[It’s] preventing people from buying homes, cars or starting families.
“Companies can do good and do well at the same time,” she adds.
Follow the Leaders
Though student-loan-repayment programs are a relatively new benefit, Aetna isn’t alone in offering such an option.
Jennifer Hanson, head of associate experience and benefits at Fidelity, says Fidelity started its student-loan-repayment program in January 2016 after hearing from managers about how their employees were struggling with student-loan debt.
“My team began conducting interviews with employees and we were surprised at the amount of stress the heavy burden of debt was putting on [them],” she says. “Some employees said, ‘I won’t date because I don’t want to bring that into a relationship,’ or that they were waiting to get married, buy a house, have a baby and so on.”
After the interviews, Hanson and her team went back to leadership to talk about what Fidelity does at its core, and how the company could tie that mission to how it treats employees.
Fidelity’s program, like Aetna’s, is designed so that employees don’t have to pay back any money the company contributed to their student-loan debt if they decide to leave. Fidelity pays $2,000 per year, up to a $10,000 lifetime max. The money is sent directly to the loan servicer monthly.
As an early adopter, Fidelity had limited data on the success of student-loan-repayment programs, Hanson says, so that when the initiative rolled out, success was hypothetical.
“We didn’t know if it would drive results we wanted to see, and we could only speculate on how much debt employees carried,” she says.
Mooney echoes Hanson’s sentiments: “We made an educated hypothesis because we didn’t enter this with perfect information,” she says. “There are limited data on this, so we had to think intuitively, ‘Will this have the impact we want it to have?’ We had enough of an educated case that it would, which enabled us to move forward with the program, and now we have numbers and data.”
Aetna’s student-loan-repayment program participants have been promoted 45-percent faster than non-participants, while ETAP participants have been promoted 27-percent faster than non-participants. The company has seen an 8-percent increase in retention among tuition-assistance participants since 2011.
At Fidelity, employees participating in the student-loan-repayment program have saved $22.5 million on principal and interest payments, Hanson says, and this same population has shaved 34,625 years off their loan-repayment time.
Accessing Their Full Potential
The advantage of education benefits can be felt beyond the individual and organization. PwC Chief People Officer Mike Fenlon stresses that PwC implemented its Student Loan Paydown program because of the implications student-loan debt can have on financial literacy, diversity and economic fairness.
“The Student Loan Paydown reflects our commitment to social responsibility,” says Fenlon. “It’s a huge societal issue that we’re invested in addressing.”
Financial literacy among millennials, the generation shouldering much of the trillions in debt, is lacking. PwC research indicates that only 24 percent of this demographic demonstrates basic financial knowledge, approximately 30 percent overdraw their checking accounts and more than 20 percent withdraw money from their retirement accounts.
Fenlon says that, when you examine these data closer, there are huge disparities among white and minority graduates in terms of debt, interest rates and even their ability to apply and be approved for loans. These disparities can prevent minority students and graduates from reaching their full potential, he adds, and they often start long before college.
Brookings Institution found that, upon graduation from a four-year college, black graduates owe, on average, $7,400 more than white graduates. Four years after graduation, black graduates have nearly double the student-loan debt of white graduates ($52,726 versus $28,006, respectively). Additionally, the Brookings Institution reports that black graduates are much more likely to experience negative amortization: 48 percent of their loan balances increase after graduation versus 17 percent of white graduates.
Fenlon says that these financial inequalities, which are often generations in the making, can lead to underemployment and financial insecurity, “resulting in unstable communities and perpetuating the cycle for another generation.”
The Student Loan Paydown benefit, which PwC rolled out in July 2016, aims to address the debt crisis and opportunity inequality. It’s available to all associate or senior associate PwC employees from the day they’re hired. The firm pays $100 per month for six years, directly to the employee’s loan servicer. This sum, depending on principal and interest obligations, can help reduce a loan by as much as $10,000 and decrease the life of the loan by up to three years.
Fenlon adds that there are no strings attached to the benefit, and employees who leave PwC do not have to repay any of the money. Since the program started, approximately 8,000 employees have participated in it.
Nearly all HR leaders are looking to increase the diversity talent pipeline, he says, and a program like the Student Loan Paydown is one way to improve D&I.
“Higher education needs to be accessible so that we become a society where everyone can fulfill their potential, no matter their race, socioeconomic status, gender, etc.,” says Fenlon. “The need to finance higher education is a massive barrier to reaching full potential.”
On the (Bright) Horizon
Aligning business goals with employee needs is on every HR executive’s to-do list but can be difficult. A study conducted by CommonBond, a marketplace lender that refinances graduate and undergraduate student loans, found that 95 percent of HR executives want to improve the financial wellness of their employees—yet only 9 percent of employees currently receive student-loan-repayment benefits.
Leigh Gross, vice president of partnerships at CommonBond, says that, while financial wellness is on the radar of most HR executives, the programs most companies currently offer are more likely to benefit employees without student-loan debt.
“Financial-wellness programs without student-loan benefits leave a large segment of the workforce with unaddressed financial needs,” says Gross. “Student-loan repayment has proven to attract talent, engage employees and improve work performance.”
Patrick Donovan, senior vice president of education advisory services at EdAssist, part of Bright Horizons, says EdAssist began offering student-loan-advisory services in 2012. It has since become a sought-after benefit, with 70 percent of EdAssist’s clients offering employees these services and roughly a dozen contributing toward paying off employees’ student-loan debt.
Donovan says student-loan debt was once thought of as strictly the “employee’s problem,” a mentality that is shifting.
“More employers are beginning to look at education benefits as a business solution,” says Donovan. “If you want to build the skills in your workforce and remain competitive in the war for talent, but your employees have this $30,000 to $100,000 barrier, now their debt becomes your problem. If you can grow internal talent that fills your needs by removing the financial barrier, that’s a great business strategy.”
Experts agree, however, that the most important thing to decide before implementing an education benefit is if such a program aligns with your company’s culture and mission. If so, HR executives are tasked with helping the rest of the C-suite understand how these benefits will grow the company—especially because there is no immediate “incentive” for employers.
Donovan says it’s imperative for employers to think of student-loan-repayment programs as more than an employee benefit. Instead, such a program should be framed as an “organizational-performance strategy.”
“It’s a business strategy to attract and retain employees that are needed now and in the future,” he says. “Employees working at a company that does something for their financial wellbeing will stay longer in their roles, perform better and be promoted faster.”
Addressing the student-loan crisis may also help solve another HR problem: improving participation in retirement plans.
“If you already offer a 401(k) and want people to participate but know they can’t because they have X amount in student-loan debt, why not remove the financial barrier?” Donovan asks.
He suggests that employers that offer a matching contribution for 401(k) plans should give debt holders the option of using that match toward student loans or the retirement plan. Once student-loan debt is more manageable, employees will have the money to actually participate in the 401(k) program, he says.
For employers hesitant to join the ranks of education-benefits trailblazers like PwC, Aetna and Fidelity, or for those waiting on more outcomes data, PwC’s Fenlon warns that worrying about benchmarking is a pitfall to avoid.
“Benchmarking by definition can be a path to mediocrity,” he says. “You’re not doing anything differentiating. If you want to lead and innovate, you have to lead and innovate.”