Research has shown that student loan repayment assistance programs are powerful tools for recruitment and retention of employees. Nearly 70% of undergraduate students leave college or university with student loan debt. Many young workers don’t feel that they are able to take advantage of other benefit options like retirement savings because of their student loan debt. No one knows the long-term implications on retirement because the young worker with high student loan debt is recent, occurring in the last 10 years. However there is some concern that firms will have to deal with top-heavy plans if young workers choose to pay off their student loans rather than save for retirement.
There are approximately 48 million borrowers with student loan debt. Together they owe an estimated $1.3 Trillion. That is a very grim number. But peel the onion to look at young workers and the numbers are even grimmer. The estimated total amount of student loan debt outstanding for borrowers under age 40 is $700 Billion. Is there any wonder why student loan repayment is the most demanded benefit for young workers?
93% of all student loans have a federal guarantee. The Federal Government has a program for borrowers to have affordable student loan payments. Qualifying for these payment programs can be a bit challenging. But, with guidance employers can help employees take advantage of these programs. The benefit to the borrower is lower payments and loan forgiveness without the added financial risk of private loan refinancing.
What’s in it for the employers? Employers that undertake to participate in these programs are taking the lowest cost way to help employees manage their student loan debt. And, the earlier borrowers take advantage of the plans the more likely they will earn loan forgiveness. Loan forgiveness allows borrowers to save significant dollars on student loan repayment. Employers that participate can increase their employees buying and spending power with little budgetary impact. Employers that participate can implement the one low-cost program that applies to all holders of student loan debt from executives to blue and pink collar workers.
Employees that enroll in this program get the best of all worlds. There is no borrower risk like there would be in changing from federally guaranteed student loans to private student loans. The borrower can take advantage of existing programs to lower their costs. And any program that the employer engages in could be on top of this program making the employer dollars go even further. Lastly, this option doesn’t require the employer to get involved in the payments of their employee student loans.
Effectively this is a great way for employers to provide a much-demanded fringe benefit at a very low cost. To find out more about your options contact us at firstname.lastname@example.org.
From a historic point of view, the class of 2016 graduated with the most student loan debt of any graduating class ever. In one year the amount of student loans taken out by the graduating class grew 6%. For the class of 2016, the average graduate had more than $35,000 in loan debt. For 2016 graduates, almost 3 in 4 needed to take on some amount of student debt to pay for their education. They will join the over 44 million Americans currently struggling with a total of $1.3 trillion student loan debt.
The staggering amount of debt is rendering interest rates almost meaningless. While students can now borrow at historically low interest rates, most won’t be able to pay off their debt in less than 30 years. Therefore, more must be done to help graduates pay down this debt.
- One in 5 Americans have student loan debt
- Only 3% of US employers currently offer student loan repayment as a benefit
- Student loan reimbursement as a benefit is usually under a Loan Repayment Assistance Plan (LRAP)
- A set amount that your employer contributes to your student loan payments
- Payments are usually time bound – meaning that the payments will last for a period of around five years (but plans vary by employer)
- Taxable to the employee receiving the assistance
- Proposed bill for a tax-free benefit – Student Loan Repayment Assistance Act H.R. 1713
- 76% of Respondents to one survey said they would be considerably affected to take a job with an employer that offers student loan assistance
Student loan debt is often one of the first credit transactions that a borrower enters. Borrowers usually enter this transaction before they have earned a degree or held a full-time job. Therefore, the bet that the government is making with its guarantee is that student will graduate and get a job with wages that are sufficient to pay back the loan.
Risk is not often discussed with student loans because most student loans are government guaranteed. While government guaranteed student loans are not risk-free, the risk is singular for all borrowers. The sole risk is default and wage garnishment. That is one huge difference between federally guaranteed student loans and private student loans.
The default risk for private student loans is significantly greater. Borrowers that default on private student loans have at risk all of their assets, except retirement accounts. As a practical matter that means that borrowers of federally guaranteed student loans will be garnished in the event of a default; but private student loan borrowers will be sued, and if they lose have a judgement against them. Any asset (homes, cars, accounts (including jointly owned assets) can be attached to satisfy a judgement.
Most people think of student loans as a signature loan, but they are really loans that are collateralized by the borrower’s future income.
Collateral is defined as something pledged as security for repayment of a loan, to be forfeited in the event of a default.
Student borrowers usually have no other assets so they pledge their future earnings as collateral that they will repay their student loan debt. If they fail to pay their loans and default on their obligation, the government will garnish their wages through an administrative process. That means the government doesn’t have to sue. It merely needs to issue a wage garnishment order to the borrower’s employer. The primary reason that garnishment can happen is that student loans are collateralized by the borrower’s future earnings.
Understanding that many borrowers will need the flexibility to meet their obligations overt the course of repayment, the government has put in place many tools for borrowers to avoid default. Among those tools are Income-Driven Repayment (IDR) Plans. IDR plans allow borrowers to cap their payments and earn loan forgiveness over the life of their repayment period. Borrowers that choose IDR get lower payments, earn loan forgiveness, and they get to keep all of the other benefits that come with federal student loans like the loan is forgiven if you die, or become disabled.
Borrowers that refinance their federally guaranteed student loans give up valuable rights. These rights include besides forgiveness upon death or disability, flexible payment plans, generous forbearance provisions, and limiting the remedy upon default to wage garnishment; and not attachment of any other financial asset. Giving up these rights are a one-way street. Once you refinance your student loans you can never get back the rights you had under the government guaranteed program.
So, besides the generous loan repayment benefits, why else should borrowers reconsider private refinance? It might mean leaving money on the table. The average refinance borrower is estimated to save about $18,000 over the life of their student loan. The average IDR plan borrower will save nearly $50,000, or 3 times as much. So why would a borrower privately refinance?
The only real reason to consider refinance is for borrowers that are not eligible for IBR. Usually, these are high-income earners, who can make higher payments and take advantage of lower interest rates. But it is often hard for borrowers to get all of the information necessary in one place to compare and contrast the options.
How can you compare? Student Loan 411 LLC can help you make that comparison. It is something that we can do for any borrower considering refinancing their federally guaranteed student loans to private. Why guess when you can know? Make a free appointment to compare if you considering refinancing.
I truly value Student Loan 411 LLC and the work they are doing. I wouldn’t hesitate to recommend their services to my friends who are also struggling with student loan debt. Thank you for doing what you do!
Customer Survey Response, July 2016