A Beacon of Hope in the Student-Loan-Debt Crisis
Roughly $1.5 trillion is the current estimate of student-loan debt in the U.S. This frightening number has steadily increased over the past decade as Gen Xers and millennials were ushered into college with hopes of graduating with 1) guaranteed employment and 2) an annual salary worth more than their total sum of debt. Then came the Great Recession, leaving recent college graduates and current and prospective students in a lurch. The promise of gainful employment and comfortable wages all but vanished and the looming threat of loan repayment thundered into view. Loans can only be deferred for so long and there are limited options for consolidation and income-based repayment. Graduates moved back home with parents, declared bankruptcy, continued their education to keep loans at bay (while accumulating even more debt) and even moved overseas to avoid the debt collectors.
One of the tiny slivers of hope to come out of this burgeoning debt crisis is that employers are starting to realize the negative impact this debt has on their employees and the economy as a whole. They’re starting to understand how it impacts everyone—even those who’ve never even applied for a student loan. Companies like Aetna, Fidelity, PwC and Deloitte are some of the few to offer student-loan repayment or loan paydown options for their employees. The latest development in the student-loan repayment world comes from BenefitEd, a joint venture between NelNet and Ameritas, called Employee Choice. This program allows employees to choose how they want their matched contributions from employers to be used—either for 401(k) or 403(b), student-loan repayment or a combination of both.
Scott Gubbels, executive director of Nelnet’s Innovation Hub (where BenefitEd was born), says that the idea for Employee Choice came from customer responses to BenefitEd’s employer-assisted student-loan repayment program. He says that clients were impressed with the repayment program and recognized the catastrophic impact student-loan debt was having on the country, but time and again said they didn’t have money in their budgets for it or they couldn’t increase their benefits spending.
“I know that six in 10 employees age 25 and younger aren’t participating in their retirement plan and that more than 70 percent of them have loan debt of $30,000 plus,” says Gubbels. “They don’t have cash flow to participate in the plan, so the question became: How do we bridge the gap to serve both markets and allow employees to make the best financial decision without adding to the costs of employers?”
The answer became Employee Choice, which will onboard its first client in October. Employee Choice is a complementary service that’s added to an existing retirement plan, which means employers don’t have to make any changes to their existing 401(k) plans. Gubbels says the total amount available for employer match is the percentage from the existing retirement plan—there’s no increase to an employer in terms of the dollars currently allocated toward matching benefits.
For employees looking to allocate funds toward student loans, employers need to send BenefitEd the employee enrollment files, then BenefitEd enrolls eligible employees into the Employee Choice program. The employer verifies employment status and provides the firm with the lump sum. From there, BenefitEd evenly distributes the money to the various loan servicers.
Sohrab Kohli, manager of the Center for Financial Services Innovation, says programs like Employee Choice are a good step forward for employees struggling with debt.
“Through our research and that of others, we are constantly reminded that consumers need better tools to address debt and savings,” he says. “To make solutions like this [Employee Choice] even more powerful, I would like to see complementary support that helps employees assess their financial health needs and make benefits decisions with more confidence. Coupling these solutions with financial coaching, or another form of trusted financial advice, can help inform or guide an employee’s allocation decision, and better support their financial health.”
Gubbels says that Employee Choice is a “low-burden hurdle” for employers that empowers employees to make the best financial decisions for themselves.
“Employee Choice is a means that doesn’t increase company costs but will increase participation in financial benefits currently offered by the employer,” he says. “This program allows employers to reinvest dollars back into their most valuable assets: their people.”