By Nancy Farmer
President, Private College 529 Plan
April 4, 2016
For the past few months, I’ve seen news story after news story about companies rolling out a new benefit – paying employees’ student debt. Look for more as we get deeper into 2016.
HR professionals usually cite the number of millennials in their employee base who have student debt. For example, Tracy Flaherty, senior vice president of retirement strategies at Nataxis:
“Millennials are delaying important financial milestones because of the burden of student debt,” Flaherty says. “In addition, research conducted by the company indicates that although the best practice for retirement saving is to start young, student loan debt is keeping a significant number of young workers from taking that first step.”
Nataxis is not alone. Fidelity is among the latest to join the party. In recent months, PricewaterhouseCoopers has made such an announcement. And a Boston start-up company, Gradifi, has created an employee benefits platform to help run such a program. The Society for Human Resource Management thinks it’s the beginning of a trend.
Student debt is viewed as a serious issue. Accumulated student loans have surpassed $1.3 trillion – more than outstanding credit card debt. The increase in debt is driven by two factors:
• College is more costly — Tuition at both public and private colleges and universities continues to increase. The rate of increase has slowed in recent years, however.
• Fewer families are saving for college – During the past five years, the percentage of families with children under 18 saving for college has dropped from 60 percent to 48 percent, according to annual Sallie Mae data.
While millennial employees no doubt welcome help making payments on their college loans, I wonder if the companies are treating the symptoms of debt – not the cause. For years, companies paid (through insurance) the skyrocketing costs of diabetes, heart disease, cancer, and other serious illnesses. Now companies are also likely to cover the costs of nutrition and exercise or smoking cessation efforts that can prevent illnesses.
In the long run, wouldn’t it be similarly more cost-effective to help employees plan for their children’s futures by encouraging them to save for college? Providing payroll deduction options for employees who save in 529 accounts, or even providing matching funds would go a long way toward incentivizing millennials to save and avoid debt for their children. Some financial advisors are promoting this concept.
Students whose families have planned and saved for college have more options available when it comes time to pick a school. They are proactive – not merely hoping for a nice financial package from their dream school.
Workplace benefits have the effect of promoting behaviors. It makes sense to promote a culture of savings, rather than perpetuate the expansion of student debt.
Nancy Farmer is President of Private College 529 Plan, a prepaid tuition 529 plan owned by 283 private colleges and universities nationwide. She is a former state treasurer of Missouri.