The Next Big Product in Financial Services Has Arrived - Part Two

Half of Younger Employees Worry Most of the Time About Student Debt 

Worried employees are less productive. Since Millennials are growing rapidly as a percentage of the workforce, what are they most worried about?  “Over half of young workers worry about repaying their student loans all the time or often...” [1], reports the non-profit American Student Assistance.

Student Loan Repayment Assistance Retains Employees

The key reason to offer financial help isn’t altruism; it’s to retain employees. In the same survey from ASA cited above, 86% of Millennials said they would commit to staying with their employers for five years if their employer helped them pay off their student loan debt. You can download the study here: asa.org/wp-content/young_worker_and_student_debt_survey_report-1.pdf 

But only 4% of companies offer assistance to employees in paying off student loan debt at present and most of these are the largest global corporations. You don’t need a crystal ball to predict that programs such as this are going to be rolled out by more and more firms. [2] They even have their own acronym: SLRP (Student Loan Repayment Programs).

Millennials 75 % of Workforce by 2025

According to the Society of Human Resource Managers, 75 percent of the workforce in the U.S. will be Millennials by 2025. They will demand that the corporations that employ them introduce SLRP programs. If such a benefit doesn’t exist or isn’t forthcoming, Millennial employees will migrate to companies that do offer SLRPs.  As wholesalers such as Fidelity, Bank of America, and others roll out various turnkey plans for businesses of every size, you will have a great new product to show. For younger Financial Advisors, this could be a goldmine.

Innovative corporations introducing SLRP programs now

The insurance giant Aetna now offers $2,000 a year in matching funds to full-time employees, up to a total of $10,000. Similar programs are offered by PWC, up to $7,200 per year, and Penguin Random House to a total of $9,000.[3] Unum has taken a different path. Employees are allowed to carry over five days of “paid time off” and use that money to pay down student debt. [4] Fidelity now has several large corporations using its turnkey plan, and others are shortly to follow. [5]

IRS to Allow 401k Match to the Amount of Student Debt Repayment

An IRS private letter ruling in August of 2018 allows companies that match employee contributions to 401k plans to contribute to the plan the amount employees pay on their student debt loans. That is, if employees cannot make contributions to their 401k plan because they have to use all of their spare cash to pay off their student loans, the company will place into their 401k plans the amount of money they paid on their loan. This gives employees the ability to save for retirement while paying off their loans.

An excellent blog post from Forget Student Loan Debt explains this program in detail, and you can find it here: https://tinyurl.com/401kcontributionsstudentdebt.

All these programs require a separate plan administrator, and the largest seems to be Gradifi. (Cannon does not recommend any product, service or vendor. This is solely for your information). Their website is: https://www.gradifi.com/.

Finally, if your clients ask you what their children or grandchildren can do to pay off their loans, direct them towards the large number of public service debt forgiveness programs offered by Federal and state governments along with excellent programs offered by the U.S. military.

We don’t know exactly how all of this will shake out, but we do know that shortly this could be a brand-new product you will be able to show business clients who need to retain and attract Millennial talent.

Resources:

[1] https://file.asa.org/wp-content/uploads/2018/08/14141823/asa_young_worker_and_student_debt_survey_report-1.pdf

[2] https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/employers-explore-repaying-student-loan-debt.aspx

[3] https://www.forbes.com/sites/zackfriedman/2018/10/18/student-loan-repayment-employee-benefits/#5476dd0a566f

[4] https://www.unum.com/about/newsroom/2019/january/student-debt-relief-program

[5] https://www.fidelity.com/about-fidelity/employer-services/fidelitys-student-debt-employer-contribution-program

Read part 1 of this article: https://www.cannonfinancial.com/article/the-next-big-product-in-financial-services-has-arrived-part-one

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Contributing Writer: Subject Matter Expert Charles McCain