When I was a consultant, one of the things I liked best about my job
was going to clients’ offices and hearing from them about the real-life
issues they faced when it came to their employees. It helped me connect
the dots in ways that simply looking at an organization’s defined
contribution plan statistics never could. For example, it’s one 
thing
to see the number of loans outstanding in a 401(k) plan and offer
solutions to limit loan taking; it’s another to learn that the reason
people are taking loans is because they are in dire financial straits
that could result in the loss of their home. With that information, you
quickly realize that the problem isn’t the 401(k) plan design — it’s a
true lack of financial wellbeing within an employee population.
EBRI has been conducting regional breakfast roundtables with employers, providers, consultants, and others across the country over the past few months, and we’ve learned a lot about what employers and their workers face today. We’ve visited San Francisco, Boston, New York, and Chicago, and plan to continue our tour throughout 2019. What we’ve learned has been essential in informing our recent research efforts.
Not surprisingly, many employers have been telling us that helping their employees with student loan debt is a key area of focus. And it is not all about altruism. In fact, according to EBRI’s Issue Brief, “How Employers Are Tackling Student Loan Debt: Evidence From the EBRI Employer Financial Wellbeing Survey,” employers are focusing on student loan debt primarily to improve employee retention — meaning it is a bottom-line issue. Employers tell stories of hiring and training employees only to have them leave for a slightly higher salary because they are so burdened by student loan debt. And it’s not just Millennials who are burdened. In “Student Loan Debt Trends and Employer Programs to Help,” Craig Copeland points out: “While the largest increases in student loan debt that occurred from 2001 to 2010 were for the youngest families, the largest increases are now starting to occur among those in the ages 35 to 44 and 45 to 54 cohorts.” In that same Issue Brief, Alex Smith of the City of Memphis explained that the average participant in the city’s student loan debt program is not in the millennial cohort at all, but 42 years old.
Employers further emphasize that the student loan debt burden is felt across pay levels. According to a report from The Aspen Institute’s Expanding Prosperity Impact Collaborative, borrowers with loans of $10,000 or less make up more than half of all defaults. However, I’ve also spoken with several employers whose workforce consisted of well-paid physicians with much greater student debt levels. They noted that despite the high pay, young physicians were struggling: they left medical school with an unmanageable debt burden that makes it challenging for them to buy a home and start a family. Several other employers asserted that when offering financial wellness initiatives, those likely to use them are not infrequently highly paid workers. These employers conclude that issues with financial instability, such as managing student loan debt, are often the result not of income level, but of spending patterns.
From my conversations, I learned that there is a lot of interest in health care company Abbott’s student loan debt assistance program. Abbott developed an initiative called Freedom 2 Save. It allows employees to receive a 401(k) matching contribution on money used to pay off student loans. In other words, Abbott’s program is geared to incentivize workers to accelerate their student loan debt payments while also helping them to amass savings in their 401(k) plan.
Abbott is not alone in innovating. The industry now offers a plethora of student loan debt assistance alternatives. In the “Student Loan Debt Trends and Employer Programs to Help” Issue Brief, Neil Lloyd, EBRI Research Chair and Head of US DC & Financial Wellness Research at Mercer, describes everything from debt assessment programs to debt consolidation services to refinancing solutions. Lloyd concludes in the Issue Brief that “there has been a great deal of innovation. This innovation has been the result of many employers starting pilot studies, to address the initial budget concerns, with a small group of employees to see whether it works with a small group and then expand out later. It minimizes the budget impact, but it also tests to see how successful the initiative is before a substantial commitment is made.”
This brings me to the bottom line of what employers have been telling us as we traverse the country with our benefits roundtables: they are struggling to find the right way to help employees tackle student loan debt, in part because it’s new territory, but also because their budgets are tight and they don’t have the data to make a strong business case to broadly roll out initiatives. This is borne out in the “How Employers Are Tackling Student Loan Debt” Issue Brief: the most common way that employers engaging with employees on student loan debt say they are offering financial wellness solutions is via pilot programs (38 percent). And the most common challenge such employers face is complexity of the programs (48 percent) and challenges in making the business case to upper management (45 percent).
As I noted in a previous blog, EBRI is building a financial wellbeing database with the goal of assisting with exactly these issues. We are populating the database with participant-level data from employers offering financial wellness initiatives and from financial wellness providers. By mining this empirical data, we will seek to determine what initiatives are moving the dial on employees’ financial wellness in terms of better utilization of the 401(k) plan, lower employee turnover, improved financial skill, lower health care costs, and more. This, in turn, can help employers sort through the available initiatives in order to find the ones that will work best for their employees’ needs and also make the case that offering financial help — such as student loan debt assistance — is more than a nice bell-and-whistle addition to available employee benefits, but instead something that can improve the work force and the employer’s bottom line.
We hope you join us when our roundtable comes to your area, and we also ask that employers and providers alike help us understand the return on investment of student loan debt programs by participating in our financial wellbeing database.