College tuition is a bigger strain on the bank account than it used to be, and recent graduates know this all too well. In fact, student loan debt has escalated to new heights, with 44 million people owing more than $1.5 trillion. For the ever-ballooning generation of millennials feeling this financial burden, that’s a lot of avocado toast.
Employers may be able to use this burden to their advantage, by attracting and retaining millennial talent with a benefit far less traditional than health insurance or vacation days: student loan matching.
As reported by the Society for Human Resource Management, the IRS now allows an employer “to offer a student-loan benefit program under which it would make special 401(k) contributions into the accounts of employees who are making student loan repayments.” That way, the recent grad doesn’t have to choose between saving for the future or erasing the debt of the past; this allows them to do both.
The idea is relatively new, with only 4% of employers offering such benefits, a mere 1% increase from 2015. However, with employers increasingly concerned with the lack of retirement savings by young workers (95% of millennials, per a National Institute on Retirement Security study), it is likely to gain popularity.
To determine if this would work for your business, consider three things.
1. Your workforce
An organization must know its workforce to plan its benefit options. According to the Pew Research Center, millennials have surpassed every other generation as the largest in the workforce. Does this statistic match your current workforce? Are you looking to hire recent college grads?
As an example, Abbott Laboratories uses its 401(k) matching program to allow its employees to repay student loans in what would be retirement contributions, while continuing to match contributions to their 401(k)s for retirement. Similar to Abbott, Fidelity Investments offers a student-loan repayment benefit to its customers through after-tax contributions from the employer. Both cases show the upward trend of student-loan benefit programs for companies looking to recruit young talent.
With recent grads acquiring student loans at the same rate they order pizza, it’s important for HR professionals to look at benefit options for young employees entering the workforce. Recruitment and retention, talent management and company growth are important factors for student-loan assistance programs.
2. Your company culture
When considering a student-loan benefit program, factor in your organization’s values and culture.
Companies placing value on higher education and youth align with offering a student-loan benefit program. For example, as a research and development company, Abbott hires many engineers, and aims to retain them for the entirety of the employee life cycle. A student-loan repayment approach is an attractive program to young potential employees, as most want to put their degree to use while paying back the loans it took to acquire it.
HR professionals should weigh the costs of a student-loan assistance program against other retention and recruiting efforts.
3. Alternatives
If a student-loan benefit program isn’t the right choice for your business to attract top talent, other options exist. One option is to take a proactive route by preventing student-loan debt in the first place:
- Tuition reimbursement aids employees in gaining a college-level or professional degree. This entails a contractual agreement between an employee and employer to help that person pay for a college degree.
- Certification reimbursement gives employees the opportunity to complete certain certifications for their particular field and get reimbursed by their employer.
There are many employee benefits to consider. Start by getting to know your workforce and understanding your desired workforce to decide if offering a particular benefit is the best fit. A student-loan assistance program could prove beneficial when competing for and retaining young talent. That way, they can have their avocado toast and eat it, too!