A new study by the Plan Sponsor Council of America on how student loan debt impacts participants’ retirement savings rates shows that only 1.4 percent of plan sponsors offer student loan repayment programs.
Recently, several large sponsors made news in announcing the new benefit offering. Fidelity, PwC, and Natixis are among those sponsors that will contribute to help workers offset loan debt.
The nascent benefit offering is a spin on tuition reimbursement programs, which employers have traditionally used to encourage employees to further their education. PSCA’s study shows that for all plan sizes, more than 70 percent have a tuition reimbursement program in place.
While adoption of loan repayment programs has been marginal, the study shows that one in five sponsors with more than 1,000 participants is considering adding a loan repayment program.
PSCA’s study underscores a reality retirement advocates have been pointing to for some time: that high levels of student debt discourage participants’ ability to adequately save for retirement.
Of the participants surveyed in 143 plans across all size segments, 26 percent said student loan debt presented a “moderate” barrier to saving for retirement, while nearly 9 percent said it presented a “high” barrier. About 25 percent said debt presented a low barrier. Nearly 40 percent reported being unsure.
Overall, PSCA termed the findings as significant.
“As the cost of tuition and the significance of a diploma continue to rise, many employers are considering new benefit programs to help future job entrants with the cost of four-year college degrees,” said Hattie Greenan, Director of Research a the PSCA, in a statement.
“Employers may need to think about student loan debt in their efforts to educate millennial employees about the benefits of saving for retirement, perhaps using a more holistic approach to financial education,” she added.
PSCA conducted the study after it held a roundtable discussion with sponsor members last year. Interpretations of the impact of debt on millennial savings rates varied.
When accounting for millennials’ responses, the study seems to betray similar discrepancies regarding how younger employees perceive the impact of their debt on savings rates.
In the financial and services industries, 16 percent and 15 percent of millennials said their debt load created a high barrier to retirement investing, respectively.
But in the insurance and retail sectors, no millennials said debt was a high barrier.
All sectors saw notable levels of “unsure” responses, suggesting an overall lack of financial awareness. In the insurance and retail sector, where millennials did not report a high barrier, 67 percent and 65 percent of millennials were unsure whether debt obligations were impeding retirement savings rates.
The study cites data from EdVisors, which provides an online platform for borrowers to compete for loans, which says the class of 2015 graduated with an average of $35,051 in student loan debt. Based on a 10-year replacement plan, $403 in monthly payments will be required.
The National Association of Colleges and Employers says the average staring salary for a graduate in 2014 was just over $48,000. Less taxes, PSCA estimates net income of about $37,000. Subtracting student loan debt, the average new hire is left with just over $32,000 to live on, or less than $3,000 for all other monthly expenses, notes PSCA.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
