The ever-growing burden of student loan debt looms over many Americans, crippling their ability to save for retirement and other financial goals. According to Bankrate, around 60% of Americans who have student debt have delayed saving for major milestones because of it. While young people bear the most debt, they’re not the only ones affected, as older generations are still paying down student loans. Some employers are taking a more proactive approach by enacting programs that reward workers for paying down their student debt with matching retirement plan contributions, or other financial incentives.
Student loans can be difficult debt to pay off. Although interest rates for these loans are typically lower than they are for credit cards, the high principal means interest accrues quickly and sizably over time. They also can’t usually be discharged through bankruptcy, and forgiveness programs have specific criteria for which only some workers will qualify.
The student debt crisis has a broad cross-generational impact. Many older Americans are delaying retirement because of the financial impact of their loans. Younger people are foregoing attempts to save money while they try to get out from under student debt.
Some organizations are now offering solutions that can be tailored to their employees’ needs, including an option to pay student debt using employer matching contributions. Certain solutions for example, will allow participants to allocate some, or all, of their employer match to student loan debt, a college fund or even an emergency savings account. This way, participants can take advantage of retirement plans by using matching contributions to help reduce debt or save money for other goals.
Advantages for Employers
According to Forbes, happy employees are up to 20% more productive at work than unhappy ones. Considering that student loan debt is a major contributor to stress, allowing employees to take charge of their finances in this way may help alleviate a significant stressor for many workers.
Plan sponsors who seek a unique way to invest in their personnel may want to consider a flexible contribution program. By helping employees pay down their debt with match dollars, organizations can provide proactive, actionable, and concrete solutions to enhance their workers’ financial wellness. In turn they can enjoy increased employee satisfaction and productivity—and even bolster recruitment and retention efforts.