Benefits & Executive Compensation News

PwC, Fidelity Help Employees Lift Student Loan Albatross

Jan. 30, 2018, 11:46 AM

PricewaterhouseCoopers and a few other pioneering employers are helping workers whittle down their student loan debts, which can be almost immobilizing for some workers.

Fidelity Investments came up with a loan-aid plan after exiting employees said they were leaving the company for relatively small pay raises because of the heavy burden of their school debts.

Offering student loan repayment benefits may be a way to attract talent fresh out of college and reduce turnover. Eight-six percent of young workers surveyed in 2017 by American Student Assistance said they would commit to five years with an employer that helped them pay off student loans. American Student Assistance is a nonprofit with the goal of eliminating finance as a barrier to education.

Just 4 percent of employers provide student loan repayment aid, according to the Society for Human Resource Management, but the benefit is gaining momentum. Such repayment programs will become common over the next five years, companies told Bloomberg Law in recent interviews. Well-known early adopters include PricewaterhouseCoopers, Fidelity, Aetna Inc., Staples Inc., and New York Life.

$1.4 Trillion Burden

Nearly 70 percent of college students earning a bachelor’s degree borrow to go to school and graduate with a loan balance of more than $25,000, according to research from Gradifi, a company that facilitates payments from employers to their workers’ student loans. That totals up to more than 44 million people collectively owing $1.4 trillion in student loan debt, according to the Federal Reserve.

PwC was the first big company to offer the benefit, something the company takes pride in because of its “commitment to innovation,” Michael J. Fenlon, chief people officer with PwC, told Bloomberg Law. And the impetus came from its employees, he said.

Employees shared how their debts affected their life and work decisions, he said.

The company partnered with Gradifi to roll out the benefit and facilitate the payments to loan servicers. PwC offers benefits of $1,200 a year for the first six years of employment as an associate or senior associate. Employees who are promoted to manager no longer qualify for the program, but some companies don’t have this cutoff.

Employee response to the program exceeded PwC’s expectations. More than 8,600 workers have signed up since the rollout in 2016. PwC estimates that the payments it makes toward an employee’s student loan could lower some obligations by $10,000, because it reduces the overall cost of the loan plus the accrued interest, Fenlon said.

Fidelity’s New Product

For Fidelity, the business case for offering student loan repayment benefits “wrote itself,” Cindy Silva, head of financial wellness at Fidelity Investments, told Bloomberg Law.

The Boston-based financial services provider started thinking about the possibilities when it found it was losing associates to competitors for as little as $1,000 or $2,000 more a year in pay.

Exit interviews had unveiled the reason for the company’s frequent turnover in lower-level roles. What Fidelity heard was that most of the departures were fueled by the need to pay off student loans.

Too New to Benchmark

Before offering the benefit, Fidelity considered several factors, including how much it wanted to give and what other employers were doing. But it was tough getting a benchmark because as it turned out, not many companies were offering the benefit.

“There were so few companies offering this type of benefit. You usually look in the market to see what others offer,” Silva said. Fidelity eventually landed on the figure of $10,000 total per employee over five years.

Fidelity instituted a six-month wait before new workers become eligible, and it pays $166.67 monthly toward the loan. The program is offered to manager level and below with 6,000 employees participating.

Because the contributions to student loans are treated as taxable wages for the employee, Fidelity considered several possibilities of how it could structure the payments, Silva said. There was some consideration around paying $100 to the loan and taking the $66.67 to offset taxes. That idea was nixed because the goal was to put as much money toward the debt as possible, Silva said.

“We put the full amount to paying the debt and we tax our associates and we don’t compensate with extra pay.” Incurring extra taxes wasn’t a deterrent for employees wanting to sign up for the benefit, she said.

Like many offering this benefit, the program is fairly new, starting up in 2016. Fidelity’s program worked so well for its employees that it’s now in the pilot phase of offering the program for other employers.

Fidelity has started to see a reduction in turnover levels since it started offering the benefit, Silva said.

Small Shop, Big Benefit

TCG Inc., a small consulting firm based in Washington, just started offering student loan repayment for workers after years of wanting to, TCG founder Daniel Turner told Bloomberg Law.

The firm set up a tiered system for employees, offering employees $1,000 the first year, $500 the second, third, and fourth, $1,000 the fifth year, and $1,500 the sixth year, Turner said.

“The idea is that student loans are stupid because you can never ever get out of them and that’s not the American way. It can be crushing,” he said.

Turner said his hope is that providing the benefit “says something about how we value our employees and how we want them to succeed in life.”

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at kknebel@bloomberglaw.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com

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