401K or Student Loan Repayment? A new choice for debt strained workers

“until debt tear us apart brick wall vandal” by Ehud Neuhaus on Unsplash

America’s workforce is getting older and is on pace to be the oldest it’s ever been. According to a report from the Bureau of Labor Statistics, over 24% of America’s workforce will be over the age of 50 by 2024. That’s up from only 11% as recent as 1993. America’s workforce is predicted to grow to 164 million by 2024, and 41 million of those workers will be 55 or older.

As older workers begin to dominate the marketplace, younger workers are looking to higher education and training as a way to differentiate themselves from their older, more experienced colleagues. America’s workforce is also on pace to be the most educated it’s ever been, but for millennial workers, higher education comes at a high price and crushing student loan debt. According to research from the Pew Research Center, 1 in 4 adults under the age of 30 owe at least $25,000 in student loans back to debtors. As America’s younger workers face these new challenges to their long-term fiscal health, retirement saving as a priority is taking a backseat to student loan debt repayment, and employers are paying attention. The public and private sectors are hoping to relieve young workers with policies and benefit plans that will help them pay off their student loans and offer more positive economic outlooks in exchange for loyalty and innovation. Employer benefits are changing, and student loan repayment may be the new standard for Millennials as 401K plans have been for past generations.

Private sector innovation and public sector support

In 2016, Prudential Retirement was one of the first companies to offer student loan repayment as a part of its employer benefits offerings to businesses. Jamie McInnes, head of total retirement solutions, said their innovative benefit offering aligned with the priorities of debt strained workers. “Our research tells us many workers will choose to pay down debt rather than save for retirement over their lifetime”, she said.

In May 2018, the IRS publicized a private ruling letter to an anonymous employer seeking to match employee contributions to their 401K with direct payment to their student loan debtors. This ruling enabled the employer’s student loan repayment benefit that other companies have rolled out since then.

How does it work?

Student loan repayment as a benefit has a few different forms, but the most common may be a direct value offered by the employer for the purpose of paying down loan balances. In an interview with Forbes, Leigh Gross, VP at CommonBond, detailed the mechanics behind direct loan repayment. “The most direct way to provide value is through an employer-sponsored student loan repayment program, where employees receive a specific amount of money on a regular basis to pay down their debt, typically $50-$150 each month.” She went on to say this could help debt strained students pay down their loans more quickly, up to three times faster in some cases.

Some employers also match 401K contributions, but instead of depositing to employees’ 401K accounts, they make payments directly to employees’ student loan balances up to a certain amount or dollar percentage. This presents a unique choice for employees who can prioritize saving for retirement or paying of their student loans faster with the help of their employer.

Employers are signing on

Only a few employers offer student loan repayment as a benefit, but the list of those who do is growing. Companies from different industries are offering their own student loan repayment plans. Big 4 accounting firm, PWC, gives employees $100 a month against student loan debt for up to 72 months. Aetna employees can receive up to $2,000 per year against their debt from the healthcare provider, $10,000 maximum over the lifetime of their career. The U.S. Federal Government even offers student loan repayment to its workers where eligible, up to $60,000 over the lifetime of their career.

Employers note student loan repayment as a benefit is key in attracting young workers who are highly educated and possess specialized skill sets that are current and necessary to stay competitive in a dynamic marketplace with emerging cultures and technologies. A recent SoFi survey of workers under the age of 30 confirmed this as 95% respondents said they would be more willing to take a job if the employer offered student loan repayment as a benefit.

A choice for employees

Blacks in Consulting is a social community of diverse consultants, technologists and leaders from various Fortune 500 companies and Big 4 accounting firms. In a group discussion, practitioners in the forum revealed serious concern about taking employee matching away from their retirement savings. When asked, “Which of these benefits would you rather have?: 401K match or match to student loan repayment?”, responses were split at 50%. One consultant expressed uncertainty in moving away from retirement saving saying, “It’s good to have something to fall back on, but the option is interesting.” Student loan repayment as a benefit could be a relief for so many debt burdened workers, but retirement savings still mean more long term to those same workers hoping for comfort later in life.

So what will it be, debt repayment or retirement savings? The choice is yours, almost.

Slack User Researcher 📲 l Lo-Fi Creator 🎧| Human 🧘🏾‍♂️

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