Student loan assistance for employees is one of the most important innovations to emerge recently in the realm of total rewards. Young people today are entering the workforce saddled with far more college debt than their parents had, and a recent study out of Boston College found that this debt burden means more of today’s employees are at risk of running out of money in retirement. In the face of this mounting crisis, increasing numbers of businesses are creating special rewards programs to help their employees pay off their student loans. PricewaterhouseCoopers now offers fresh associates $1,200 a year in loan assistance for up to six years, Natixis handed out block grants of up to $10,000 for indebted employees at the start of the year, and federal agencies have started offering this benefit as well. We’re also seeing the emergence of benefits platforms like Peanut Butter and Gradifi, which help employers offer loan assistance benefits.
But how helpful are these benefits to employees with student debt? Well, a new study from NerdWallet finds that a typical employer contribution can save each employee thousands of dollars in loan payments:
NerdWallet looked at how much a company contribution benefit could potentially reduce payments for student loan borrowers, who have an average debt of $29,400 for undergraduate loans. By making minimum monthly payments and applying the company benefit, the amount of time a borrower spends paying off the loan principal is reduced — by three years, on average. And shaving three years off a repayment plan saves three years’ worth of interest payments, totaling about $4,100 for the average borrower.
We also compared the perk to a more common money-saving option, student loan refinancing. Refinancing of federal and private loans cuts the interest rate, which can yield significant savings in interest paid over the life of the loan. An undergraduate debt holder with the average amount of debt who takes advantage of the company perk and refinancing can save nearly $4,300 in interest payments.
These findings underscore why this type of reward is increasingly popular among both employees and employers, as Bloomberg’s Rebecca Greenfield points out:
A recent survey of 1,000 people with loans found that 80 percent would like to work for an employer with some sort of repayment benefit. Around half said they preferred loan payments to 401(k) contributions and health insurance premium coverage. Health insurance has historically been the most coveted benefit. “That kind of tells you the financial pressure these kids are under,” said Bruce Elliott, the manager of compensation and benefits at the Society for Human Resource Management.
Last year only 3 percent of the 450 employers surveyed by SHRM offered student debt repayment as part of their benefits packages, but that number is expected to swell this year. “We’re going to see employers doing more of this,” Elliott said.