Student Debt: Is Help On Horizon?
The opportunities that a college education presents are undeniable. Studies show that income potential increases with the achievement of educational training and college degrees. The problem is that some students are graduating with a very large debt load. A well-publicized issue that continues to gain attention is that repayment of student borrowing has many spillover effects for the borrower. Debt repayment can be overwhelming for recent graduates beginning their career. For example, based on a student loan amount of $50,000, a 10-year payback timeframe, and an interest rate of 6 percent, a monthly loan repayment cost would be $555. For many young adults, this obligation, along with a car payment, rent, health insurance, as well as other living expenses, can be difficult to meet. Additionally, credit scores have the potential to suffer as debt utilization and payment history are crucial to building strong credit. This is partly why we see so many young adults choosing to live at home after graduation. They need time to build cash flow. Concurrently, by most measures, our economy is reaching increased growth levels. Some economists anticipate 4 percent growth in gross domestic product in the coming years. Unemployment has dipped below 4 percent and companies are expanding. Locally, as reported in Times-Shamrock newspapers, new jobs are projected in Luzerne County in 2019 at distribution centers for companies such as Adidas and Patagonia. They will be seeking many new workers. The “war for talent,” as some in the media have coined, among companies seeking to capture new workers, has begun. When companies want to fill job openings, they may raise wages to compete or find more creative ways to recruit and retain the talent that they need. If the economy continues to grow and the availability of qualified workers continues to be an issue, that is good for workers, their wages and other perks. Given both of these scenarios, we are seeing a new employee benefit on the rise. Companies are beginning to offer student loan assistance. How does it work? Companies will offer student loan repayment assistance to employees where they pay loans directly with a yearly and/or lifetime cap. In our research, we found companies, on average, set that cap at $10,000. This helps in speeding up the repayment period for employees. When I first heard of this, I thought it was too good to be true. And a smart move for companies. As a way to recruit talent to an organization, why not offer a benefit that has tremendous utility? Studies of employees who have access to this benefit show that assistance with debt reduction is highly regarded. If you think about it, companies commit to supporting retirement plans such as 401(k)s and will incentivize participation by matching contributions. Arguably, early career employees with student loans need help with debt repayment as much as, if not more so, than they need retirement planning. Of course, we always encourage starting early to save for retirement. But the reality is that for many, student debt can be overwhelming and a deterrent to early savings for retirement or meeting other financial goals. Gradifi is one company that is in the forefront of this concept helping employers with this offer. If you visit their website, you will get an idea of the companies that have begun to provide this innovative benefit to employees. Recently, Abbott Labs offered an interesting benefit to U.S.-based employees who pay at least 2 percent of their salaries towards student loan payments. The company contributes 5 percent of the employee’s salary to the company 401k. The concept is that younger employees aren’t contributing to retirement plans because of the cash flow pressure of student loan debt. As mentioned earlier, Luzerne County is anticipating welcoming Adidas and Patagonia to our community. Both companies have excellent employee benefits and we will see if they include student loan repayment in the overall package. Interestingly, and positive for Luzerne County, one of the criterion for location selection was the availability of qualified workers. We will see how this plays out in the future. This is a trend right now but, potentially, this will be a benefit that becomes standard among employers in the future. In any event, if this type of benefit would be important to you, it is a good idea to research the companies that offer this as you are looking for employment. You may be pleasantly surprised! PETER D. SHELP, AWMA, ChFC, CFP, CRPC, is with the Kingston Retirement Group of Janney Montgomery Scott LLC, 270 Pierce St., Kingston, PA 18704. Call him at 570-283-8140 or visit www.kingstonretirementgroup.com.