Student loans are a problem not just for Millennials but also for their parents shouldering some of their debt. So some companies are stepping up by offering to help pay for a portion of these student loans as a corporate benefit with start-up firm Tuition.io claiming that it will become as popular as 401k plans.
According to a recent study by Boston College’s Center for Retirement Research (BC CRR), younger workers burdened with student loans are a big problem and can hurt retirement savings. In 2013, 55% of workers in their 20’s had an average student loan of $31,000; student loans have grown from $20 billion in 2003 to $1.2 trillion in 2015 and account for 30% of non-mortgage debt for younger workers exceeding credit cards possibly inhibiting workers from contributing to their retirement plans at work.
Prudential, partnering with a startup, Student Loan Genius, is offering an innovative solution.
Employers sponsoring a defined contribution (DC) plan can help their workers with student loans by matching loan payments through contribution to the company’s retirement plan whether the employee is contributing or not. Tuitio.io offers companies the option to facilitate and pay off student loans by offering $100-$200 per month as a way to attract new employees saddled with student loans.
Critics say that the industry should focus more on refinancing student debt rather than just helping workers pay it off. Companies have a limited budget for benefits like 401k and 403b plans so will offering to pay off a portion of their workers debt cut into the match? Employees tend to defer up to the match so stretching it might help but ultimately the amount contributed either by the company or employee are the biggest factors in increasing savings.
Regardless, helping employees with financial literacy, including managing debt while maximizing saving for retirement is becoming a workplace issue. Companies can choose to ignore this making recruiting and retention more challenging, or adopt, perhaps relieving financial stress, increasing productivity while helping workers to retire on time.
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