The Trump Effect and Business: College Loans
There's an upward trend of employers helping their employees pay off outstanding student loan debt, particularly as more millennials join the workforce. Paychex retirement compliance manager Mike Savage and small business influencer Gene Marks explore how this is becoming a strategy to help attract and retain talent.
Gene Marks: Hi, everybody. My name is Gene Marks. I write every day for the Washington Post, and I write weekly online for a bunch of other places. I am here with Mike Savage. Mike is Manager of Retirement Compliance at Paychex. I'm continuing to get this right, which is good news. So you have to deal with everything, retirements, and also benefits related to your customers. Student loans is becoming more and more of a hot topic. I don't know if you know this. I don't know if you guys know this or not. But college, it's kind of expensive, right? That's what I, I'm reading this.
Mike Savage: Yeah, I've heard that, yeah.
GM: So the millennial generation, which makes up such a large percentage of the workforce, these people are graduating from universities. They are just buried in student debt. It is a big, big issue for a lot of them. And some employers, some big employers, are responding to the student loan issue. Some of them are offering reimbursement of student loans. There were some really cool services that are out there that help administer this, as well. It's definitely, it's a hot topic. And so you've been doing some work in the area of student loans. What are you finding?
MS: Yeah, well, what we're finding is it's a crisis, right? So there's about 44 million people in the U.S. that have outstanding student debt, and it's about $1.3 trillion in outstanding student loan debt, which is significant. And of the millennials that you talk about, 44% have outstanding student debt. So it's a big deal.
GM: Yeah, it's insane.
MS: And with that group of people becoming a massive portion of our workforce, it's a real issue that employers have to address, as far as attracting talent and retaining talent. So it's interesting. Only about 4% of employers currently offer a student loan repayment benefit, which is actually pretty low. But that's on the rise.
GM: Right. Why do you think that is, out of curiosity? Why only so – you'd think it's such a big issue for a lot of people.
MS: I think the fact that millennials are getting – that's a great question, and I'm not really sure. But I think millennials are becoming more savvy. And I think the fact that their loyalty is not as prominent as maybe the Gen X or Boomers, so there may be moving to – now they're starting to move to employers who offer these types of benefits. So now, employers that don't offer it are having to get really strategic about how they address that.
GM: It makes sense.
MS: Yeah, and so it's an interesting benefit. And what you find right now is it has to do with after-tax dollars, because there's a lack of legislation that promotes it, through … whether it's tuition reimbursement or through a 401(k) arrangement. So what we're doing is we're working with policy makers to try and draft some legislation that would weave in student loan repayment benefit into a 401(k) arrangement. Because we see both as a really big item to address, both contributions to retirement planning and 401(k), but then also student loan repayment.
GM: So are you saying it would be like a pretax kind of thing? So if I've got a student loan, I could actually have money come out of my compensation pretax, and put away to pay it down, and employers can also contribute, as well, pretax? Is that correct?
MS: That's correct. So what we're trying to do is promote the loan repayment, at the same time, promote a loan holder contributing to their 401(k). And if they do both of those, that triggers a match from the employer.
MS: Now, the trick there is, whether it's after-tax or pretax money, and reducing a tax revenue to the federal government, getting that policy passed is difficult. It's a challenge right now in D.C. So we're trying to get creative with how we work and drafting that policy.
GM: Could it be something kind of similar to 529 plans, where maybe after tax, it could be after-tax money, but maybe it grows tax-free?
MS: It could, yeah. We're entertaining all different types of options. And really, whatever we can get through to tackle this crisis is really the biggest benefit for us and for our clients.
GM: So that's definitely something we should be watching on the horizon. And you are working on this legislation. Hopefully, that's something that will happen in the future. Right now, OK, so I'm an employer. What recommendation would you give your employer? How important is this benefit to your employees? And what advice would you might have?
MS: I think it's critical. I mean, benefit managers, it should be, aside from insurance, and then also retirement or 401(k), student loan repayment benefits should be at the top of the list of things that they're considering. And it's really targeting towards – it's the millennial generation. That's the big generation. But there's also Gen Xers and Boomers that still have outstanding student loans. And they're all going to benefit from this. So it's helping build a strong talent pool, retaining a strong talent pool, and combating this major crisis we have. And trying to weave it into retirement planning and 401(k) contributions, that's really the sweet spot, we think, for this type of legislation.
GM: That's great advice. Thanks, Mike.
MS: You're welcome. It's good to see you again.