Fidelity Joins Big Companies, Small Startups Helping Pay Down Employees’ Student Loans
Posted By Donna Fuscaldo on March 21, 2016 at 12:54 pm
There’s no question student loan debt has become a huge problem in America with more than 40 million people owing at least one student loan and the average balance hovering around $34,000. At the same time, companies around the country are having a hard time recruiting and retaining top talent with unemployment at an eight-year low. The result: more companies are embracing student loan repayment programs as a way to recruit and retain much-needed workers.
“A consistent concern (among employees) is around student loan debt,” says Jennifer Hanson, head of associate experience and benefits at Fidelity Investments. “We’ve heard stories of people putting off getting married and buying a house until they paid down student debt.”
Similar to how employees receive tax-advantaged retirement savings vehicles from their employers, with student loan repayment programs, companies agree to pay back a certain amount of an employee’s student loan each month. While companies aren’t doing this in droves, some firms that have a large millennial employee population see this as a way to help their employees and, at the same, build loyalty among a group that is known to job hop after a couple of years.
Fidelity to pay up to $10,000 of an employees’ student loan debt
Earlier this week Fidelity, announced it has rolled out a new benefit for its employees with six months under their belts. Called the Step Ahead Student Loan assistance program, employees get $2,000 a year toward their student loans, up to $10,000. It also increased the paid time off for maternity leave to 16 weeks and increased parental leave to six weeks. In the first few weeks of the program, Fidelity said close to 5,000 employees enrolled and are getting help with their student loan payments.
It’s not surprising that Fidelity’s employees are quick to embrace this new benefit that is slowly increasing in popularity. After all, student loan debt is preventing people from purchasing a home, getting married and saving for retirement. Study after study has shown the negative impact of carrying student loan debt into a person’s working life.
Assisting employees with their student loan debt isn’t new, but moves by Fidelity, consulting firm PWC and a handful of start-ups is pushing it into the mainstream. Known in the past as an employer-based loan repayment assistance program, or LRAP, companies, schools and organizations give workers or alumni a stipend to go toward paying off their student loan debt. The money is counted as taxable income, and the amount can differ from one employer to the next. Traditionally, LRAP programs were focused on professions where there is a need to recruit workers but is now expanding to all employees with student loan debt.
When it comes to student debt assistance programs, the amount of help employees are going to get will vary. Hanson at Fidelity says the investment firm came up with $10,000 because they wanted to get to $2,000 a year so it’s enough to have an impact, and it wanted to get employees to the five-year mark because after five years of working at Fidelity, many of its employees are focused on other benefits Fidelity has to offer. The size of the company also pays a role. The larger the enterprise, the harder it is to pay back a large portion of employee student loan debt.
Start-ups get in the game to recruit and retain millennial workers
CommonBond, the online lender that funds and refinances student loans, launched a student loan assistance program at the end of 2015 in which employees get $100 a month to go toward their student loan repayment or up to $1,200 a year. There is no cap on how long the employee can take advantage of the benefit, unlike at other institutions. Currently, the company has just under 100 employees with a lot of its workforce made up of millennials. Phil DeGisi, chief marketing officer at CommonBond says about half of the employee base is taking advantage of the perk and says it’s important for companies to offer assistance, given the sheer number of people shackled with student loans.
“We hire a lot of millennials and seven out of ten are leaving school with some amount of student loans,” says DeGisi. “It could be a great recruiting and retention tool.” While DeGisi said CommonBond could have capped the amount the company would pay, it chose not to because for one, CommonBond is a company that works in the student loan space and also because it’s a way to help the employees.
LendEDU, the online marketplace for student loans and student loan refinancing, may be one of the most generous companies when it comes to helping employees with student loan debt, but that’s largely because it is in start-up mode with a small team of only six employees. Employees get $200 a month toward their student loan payment and there is no cap on how long they can tap that benefit. Like the other companies, Nate Matherson, the 21-year-old co-founder says LendEDU will be expanding the headcount by 100% in the next few months and thinks this benefit will be attractive to younger employees. “So many college graduates are leaving campuses with student loan debt,” says Matherson. “This helps us stand out from the larger companies and other start-ups.”
Repayment assistance only the beginning
Because these programs are still in their infancy, the jury is out on whether they will be an effective recruiting tool and if they will make a big impact on a problem that has reached crisis level. But one thing is for sure, proponents of student loan repayment assistance programs think this is only the start of new ways to help employees get out from under their student loan debt. “This is just the beginning,” says Hanson at Fidelity. “There’s a lot more to come whether its opportunities for refinancing or additional guidance. This is the very beginning of a wave.”