Why families should talk about college tuition.
For decades, employers have tried to improve the financial well-being of their workers – not just by delivering paychecks, but also by providing benefits such as health insurance and retirement plans.
Lately, more attention has been paid to helping employees deal with another pressing consumer financial problem: mounting student-loan debt.
Student loans have moved up to second place, behind mortgages, among the main types of consumer debts out there. It’s a problem that’s especially acute for the young adults whom companies are trying to attract.
Many employers already offer tuition-reimbursement programs that subsidize workers for taking college courses, and other initiatives are taking root to help those employees who already have amassed thousands of dollars in debt.
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Utilizing unused vacation, sick time
Unum, an insurance company, last year began a voluntary program under which employees could divert up to five days of unused PTO, or paid time off, and apply the monetary equivalent to paying down student debts.
Benjamin Frelka, a 28-year-old sales representative in Unum’s Phoenix office, said he applied a bit more than $1,000 last year from five PTO days toward paying down his loan debt incurred from earning his degree at Arizona State University.
“I have just over $10,000 in student loans, so I was able to knock out just over 10% of my debt that one year,” he said.
As his pay gradually increases, the value of those PTO benefits also will grow, allowing for a faster debt pay-down in future years, Frelka said.
Carl Gagnon, an Unum assistant vice president overseeing well-being and retirement programs, estimates that roughly one-third of the company’s workers with student loans took advantage of the voluntary program in the first year.
Unum offers a minimum of 28 PTO days annually, so workers typically would have plenty of time for vacations or sick days, even if they applied some days to debt payments, he said.
Last year, 428 Unum employees diverted an average of 37 hours of PTO time, equivalent to an average of $1,250, to pay down student loans. Gagnon said the company might expand the program down the road so that some unused PTO days could be applied to credit card balances or other types of consumer debts.
Dealing with debts first
Fidelity Investments helped Unum set up the program. Fidelity is an investment-focused company more renowned for mutual funds, exchange-traded funds and 401(k) plans, but it couldn’t easily ignore the 44 million Americans with student-loan balances.
“It became clear to us that we can’t help people save for the future without helping them deal with their present debts,” said Asha Srikantiah, a vice president in charge of Fidelity’s student-debt program.
By allowing workers to apply some PTO benefits for student-debt repayment, employers like Unum might find it less costly than, say, making direct cash payments.
“Employers are looking for ways to maximize the relevance of their benefit dollars to employees, while allowing employees to maximize their choices,” she said.
Nor is this a problem that affects young adults only. Some baby boomers and other older workers have amassed large student-loan debts, too, either because they co-signed on loans or took them out to help spouses, children or grandchildren.
“Our employees were pretty engaged across all generations,” said Gagnon, referring to participation in Unum’s program to apply unused PTO to student-debt payments.
Different assistance options
Fidelity’s “student debt employer” program actually has three variations. One allows employees to divert unused PTO or other benefits to pay down debts, as with the Unum example. Another, more popular choice involves employers making student-loan payments directly on behalf of workers.
A third version links student-debt reduction specifically to 401(k) or other retirement contributions. In other words, if workers are making regular student-loan payments but can’t afford to invest in the 401(k) plan as well, the employer antes up retirement-plan contributions so that these employees don’t fall behind with their investing.
The PTO option seems especially timely now. Between 40% and 50% of Unum’s employees didn’t use all of their PTO days last year. That percentage could rise if workers find it difficult to take time off for vacations amid the COVID-19 pandemic — or if they hoard PTO time, given the possibility of contracting the virus, but don’t get sick.
Direct payments popular
In addition to linking debt payments with unused PTO or other benefits, many employers, as noted, already contribute money directly to help pay down debts. Regardless of the funding source, applying additional payments toward a student-loan balance can shorten the time horizon and save thousands of dollars.
For example, applying an extra $200 a month on a 10-year, $35,000 loan carrying a 5% interest rate can shorten the loan by four years and save about $4,000 in interest payments, according to an example from Gradifi by E*Trade, an employee benefits company.
Gradifi provides a downloadable letter or petition, at gradifi.com/employees, that people can sign along with their co-workers and take to their human-resources department in hopes of getting an employer debt-repayment program going.
Gradifi assists more than 800 companies through its loan pay-down plan as well as those geared to other programs such as student-loan refinancing and contributions to employee Section 529 college-savings accounts. Clients include PwC, the Hartford, Ally Bank, Peloton, Carvana and Penguin Random House.
Emergency-fund shortage, too
Various employers offer other types of assistance, too. For example, Comcast and Uber are among companies that provide short-term, small-dollar loans to help employees get through a pinch. Other employers help workers save automatically on their own, outside company-sponsored retirement plans and without student loans targeted.
These auto-save programs enable employees to divert a small portion from their regular paychecks to a bank or other savings account, reflecting the reality that millions of Americans have no emergency funds to fall back on.
Even before the coronavirus pandemic hit and millions of jobs were lost, nearly two in five adults expressed concern about being able to meet an unexpected $400 expense, according to a Federal Reserve study. Since then, for many, the near-term financial challenges have only gotten worse.
These auto-save programs are optional and, of course, people can easily set up such plans on their own. But sometimes, it takes help from an employer to get the job done.
Reach Wiles at email@example.com.
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