Better Benefits for Millennials: More Companies Helping to Pay Off Student Loans
Millennials (people now in their 20s and early 30s), who outnumber Baby Boomers in the U.S., have been saddled with $1.2 trillion in student debt. According to a recent article in The Boston Globe, the average student debt in the U.S. has increased 60% from $18,000 to $27,000 since 2007. But things are turning up for Millennials in the workforce: employers are competing to attract and retain them, and some companies are even offering student loan repayment programs as an added benefit. Although this type of financial assistance is currently considered taxable income, Congress introduced a bill last year that would allow employees to receive up to $6000 annually in student loan payments from employers on a tax-free basis.
For Millennials, this is potentially very good news. Statistics show they are less likely to invest in retirement plans and begin to save for the future, including milestones like buying a house or starting a family, due to high debt levels. With the rise of health care costs, increasing quality of life due to medical advancements and the possible end of Social Security benefits before they are old enough to take advantage of them, this could present a massive problem for Millennials. It’s a step in the right direction for companies to help employees chip away at their student debt and start saving.
In the long run, the companies themselves will benefit greatly from implementing a student loan repayment program. It inspires loyalty, productivity and helps retain key talent. Companies that have started offering this benefit to employees, such as PricewaterhouseCoopers, Mass Mutual and Natixi, prefer filling executive roles organically and try to avoid high turnover. They consider it a worthy investment to attract and keep people who understand the vision and expectations of the company and end up staying there for years.
This could also lead to a huge industry trend. Investors have an opportunity to get in on the ground floor of third-party payment processors like Tuition.io and Boston-based Gradifi Inc., which provide a much-needed service. The U.S. is facing a huge debt problem, especially in the higher education space. I believe if you can help fix or monitor the problem, you can have some serious success.
The U.S. government will also benefit. Removing the weight of debt off the shoulders of 83 million Americans will help stimulate the economy. The less debt Millennials have, the more likely they are to make major purchases and spend more monthly, whether it’s buying a new car, taking a big vacation or simply going shopping, in addition to starting a family sooner rather than later. Statistics show Millennials have delayed buying homes, starting families and contributing to their retirement plans because they are burdened by debt.
For all parties involved, employer-sponsored student loan repayment programs are a win. I expect we’ll see a spike in the number of companies implementing this benefit over the next few years.