Recruiting and retaining top talent means offering a competitive benefits package, and increasingly that means offering a student loan benefit. However, in my conversations with EAP providers and others in the HR benefits industry, I find that few groups are familiar with the ins-and-outs of the various benefits and platforms available.
In the coming weeks, I will be writing more about what to look for when analyzing student loan benefits platforms. But before beginning the procurement process, companies should do some introspective work to figure out what they might be looking for.
Any company considering a student loan HR benefit should ask themselves these questions to get started.
1) What financial resources do you have to dedicate to a student loan benefit?
Student loan benefits range significantly in how expensive they might be. The first thing you need to decide is what type of money you have to invest in a student loan benefit.
If funds are limited, you may want to look at non-monetary options like refinancing partnerships (i.e. contracts with banks that will help your employees refinance to lower interest rates). However, as discussed below, refinancing partnerships come with drawbacks.
Alternately, if you already have a retirement plan in place, one way to lower the net expense is to institute a program that diverts funds from a retirement matching program to a student loan matching program. However, there are tax implications for both the company and the employee to doing so. I’ll be discussing these issues more in depth in future posts.
2) Are you willing to re-write your retirement plan or would you like to keep your student loan benefit separate from retirement savings?
Some companies are making 401(k) contributions based entirely on their employees student loan payments. This match can be an extremely attractive offer from a recruiting perspective. Additionally, this structure can help you keep your expenses low because employees can take advantage of the match either through student loan contributions or through 401(k) contributions, but not both. However, implementing a 401(k)-based student loan benefit requires re-writing your retirement plan and preparing for IRS oversight of the program.
3) Do your employees tend to need better interest rates or better knowledge of the federal programs?
Private refinancing is all the rage in the student loan benefit space. In recent years a swarm of refinancing options have popped up, offering borrowers competitive interest rates that are sometimes 4-5 percentage points lower than their federal student loans. Some companies have partnered with these refinancing entities to offer even more competitive rates to their employees.
To figure out whether you should emphasize private refinancing in your student loan benefit, ask yourself whether your employees tend to need better interest rates or better knowledge of the federal program.
If your company pays competitive salaries in high-demand fields such as technology or law, it is very likely that the majority of your employees will be hoping to pay off their loans as quickly as possible to lower the interest they pay over the life of the loan. If this is the case, a private refinancing partnership will help your employees to save money.
Of course, employees lose access to federal benefits when they privately refinance, so it is not always the best option, even for highly-compensated borrowers. Financial counseling and advice may be preferable to a refinancing option (or an addition to a refinancing option) if your employees would benefit from staying within the federal program.
4) Is stress relief and employee wellness a goal of your student loan benefit?
Twenty years ago, health and physical wellness outside of work were not a concern for HR departments. These days you would be hard-pressed to find a competitive HR department that isn’t thinking through stress, health, and wellness inside and out of the workplace.
Student loans can absolutely be a stressor for the modern-day workforce. 81% of employees with significant student loan debt report being stressed about their financials. 55% of those same employees report being distracted by their finances at work.
If these numbers are concerning to you and you see the student loan benefit as a wellness benefit, be sure to include financial counseling and advice as part of whatever platform you choose. While a monetary benefit can be a huge help, for borrowers buried under a mountain of debt, control and empowerment can be just as needed as a bit of extra cash.
5) Do you want to use your student loan benefit as an incentive for retention?
A student loan benefit can be an opportunity for both recruitment and retention. In an effort to incentivize long-term commitment to a company, some HR departments have offered vesting student loan benefits. For instance, a company might offer to make 20% of a student loan payment in an employee’s first year, 40% in the next year, and so on.
This structure can be a powerful retention tool. Alternately, it can disincentivize new hires who will not immediately reap financial benefits — or anger veteran employees who had to pay their student loans on their own.
Deciding internally how you want to balance the various goals of your student loan benefit will drive your procurement process and help shape your evaluation of the platforms and programs available.