The graduation parties are over, the diplomas are under glass. And for the luckiest recent U.S. college graduates, working life has begun.
Soon enough, though, it will be time for the Class of 2016 to start paying down their student loan debts.
And for many, this will be no small undertaking.
According to consulting firm Student Loan Hero, a 2016 graduate will leave school with about $37,000 of student loan debt, an increase of six percent over 2015.
The Class of 2016 will hardly be alone when it comes to carrying debt. As of the end of 2015, the unpaid U.S. student loan balance had reached $1.23 trillion, according to the Federal Reserve Bank of New York. About 10 percent of all aggregate household debt is comprised of student loans, per the federal bank’s research. What’s more, 11.5 percent of student loan debt — around $140 billion — was in default, or 90 days past due.
Graduates entering the workforce may well qualify for a short grace period before loan payments begin. However, once the payments begin, it may take years — perhaps even a decade or more — for the loans to be repaid in full. As those monthly payments go to servicing debt, there is less capital to divert to other pursuits, such as retirement saving.
Simply put, student loan repayment can be a long, dreary march even for graduates who have received the desired utility from their college degree. And repayment has been largely a solitary pursuit.
An increased corporate role in debt relief?
To date, companies have tiptoed into the student loan repayment assistance market. In a 2015 survey of more than 400 employers by the Society for Human Resource Management, just three percent of respondents had a student loan repayment program for their employees. That said, SHRM had not asked firms about repayment programs previously, which may suggest the plans are just hitting the radar.
Two major firms -- PricewaterhouseCoopers LLC and Fidelity Investments -- have garnered headlines recently for enacting loan repayment programs for employees. Fidelity will contribute up $2,000 annually in loan payment assistance to employees with at least six months of experience, with a maximum of $10,000. PwC, meanwhile, will contribute $1,200 per year to loan holders with 1-to-6 years of experience with the firm.
Corporate student loan repayment compensation is taxable income for the recipient, which probably doesn’t help efforts to get companies involved in the process. However, a Senate bill introduced in January proposes to change the IRS Code to allow employers to annually contribute up to $5,250 tax-free to student loan holders.
While the bill needs to gain traction to become law, it’s clear there is at least some demand for corporate student loan repayment services, with Tuition.io, Inc., Peanut Butter, Inc., Gradifi, Inc. and Student Loan Genius among the firms offering payment platforms to contribute toward employee debt. Student Loan Genius, as Bloomberg noted, allows employers to link a retirement plan contribution to a monthly loan repayment, helping employees to save for retirement while reducing debt.
Each of the payment companies makes the case that student loan repayment could be a retention and recruiting advantage. Case in point: in its 2015 Millennial Benefit Preferences Study, Peanut Butter surveyed 400 people aged 21-34 and found they would be amenable to staying 1.3 years longer with a company that provided student loan repayment help.
Facing the problem head-on
Even if firms don’t have the financial resources to aid employees with debt, companies can address the issue in other ways, with an emphasis on financial wellness a logical way to start. For instance, seminars on the importance of career-long retirement saving and household budgeting could lay the groundwork for better fiscal habits.
Also, companies may already have employee benefits resources on hand to address employee financial concerns. To wit: employees coping with the ramifications of loan debt could use a corporate Employee Assistance Program to begin to address the problem, as well as some of the issues that can stem from repayment stress.
While student loan repayment should be regarded as a matter of personal responsibility, the mountainous collective debt load graduates carry into the workforce ensures it will increasingly be a corporate concern, too. Awareness of the student loan debt problem is a must for companies; the problem isn’t going away. Firms must keep an eye on the demand for loan repayment assistance — and whether it’s an option that should be considered to retain and attract talent.
Let Plexus lend a hand
The Plexus Groupe can help you stay on top of student loan repayment and other employee benefits trends. For more information, contact a client service team member at 847-307-6100 (Deer Park, Ill.), 312-606-4800 (Chicago), 972-770-5010 (Dallas) or 405-840-3033 (Oklahoma City). We're here to help -- and happy to help.