Helping Employees Pay Down Student Debt
The ever-growing burden of student loan debt looms menacingly over many Americans, crippling their ability to save for retirement and other financial goals. According to Bankrate, around 60% of Americans who have student debt have delayed saving for major milestones because of it. While young people bear the most debt, they’re not the only ones affected by far as roughly 25% of baby boomers are still paying down student loans. Some employers are taking a more proactive approach to investing in their employees by enacting programs that allow workers to direct retirement plan contributions toward paying down their debt.
The Problem with Debt
Student loans can be difficult debt to pay off. Tuition has skyrocketed in the last few decades, meaning many students have to borrow much more to earn their degree. Although interest rates for these loans are typically lower than they are for credit cards, the high principal means interest accrues quickly and sizably over time. They also can’t usually be discharged through bankruptcy, and forgiveness programs have specific criteria for which only some workers will qualify.
The student debt crisis has a broad cross-generational impact. Many older Americans are delaying retirement because of the financial impact of their loans. Younger people are foregoing attempts to save money while they try to get out from under student debt.
A Flexible Solution
Some forward-thinking organizations are now offering solutions that can be tailored to their employees’ needs, including an option to pay student debt using employer matching contributions. Thrive, for example, allows participants to allocate some or all of their employer match to student loan debt, a college fund or even an emergency savings account. This way, participants can take advantage of retirement plans by using matching contributions to help reduce debt or save money for other goals.
Thrive’s turnkey solution helps provide debt relief without increasing your retirement plan’s administrative workload. Employees simply enroll though Thrive’s online portal to set up a payroll deduction. Thrive communicates with the existing payroll service to match the contribution and takes care of administration, reporting and payment to employees’ registered account. And thanks to pandemic relief legislation, up to $5,250 in tax-free annual matching contributions can be directed toward student loan repayment through 2025.
Advantages for Employers
According to Forbes, happy employees are up to 20% more productive at work than unhappy ones. Considering that student loan debt is a major contributor to stress, allowing employees to take charge of their finances in this way may help alleviate a significant stressor for many workers.
Plan sponsors who seek a unique way to invest in their personnel may want to consider a flexible contribution program like Thrive. By helping employees pay down their debt with match dollars, organizations can provide proactive, actionable, and concrete solutions to enhance their workers’ financial wellness. In turn they can enjoy increased employee satisfaction and productivity — and even bolster recruitment and retention efforts. After all, a job that helps you take charge of your financial future is one worth staying at.Sources: