Forget the 401(k): Millennials seek student debt paydown instead of retirement package

Graduation diploma on background of US dollar bills

Do you want your business to be able to attract top-tier talent? If so, you’d better have something in your benefits package that includes the word “tuition” in it.

Out of the college graduating class of 2018, nearly 70 percent took out some form of student loans. Students who funded their college education partially or completely through student loans graduated with an average of $29,800 in debt. In total, student loan debt in the United States equates to about $1.5 trillion, spread out across more than 44 million borrowers.

The good news for today’s graduates is that, for now at least, the unemployment rate is low. In January 2019, Michigan’s unemployment rate clocked in right around four percent. It’s a job seeker’s market – one where recent grads are more likely not only to find jobs in their chosen fields, but also to land reasonably high salaries right out of school. Last year, a study by global consulting firm Korn Ferry put the average entry-level salary for graduates of the class of 2018 at just over $50,000 a year.

But salaries aren’t the only thing the job seeker’s market is pushing. It’s also encouraging employers to get creative with their benefits and a growing area of focus is tuition repayment.

“Millennials are kind of the gamechanger right now,” said Matt McClellan, human resource director for the Grand Traverse Resort and Spa. “As you look at the job market – and I don’t care what industry you’re in – what you see is that a lot of employers provide some sort of retirement assistance, like 401(k) matches. When you get to the millennials, though, a lot of them really don’t care about the 401(k) yet, at least from what I’ve seen. They’re not looking at retirement. They’re thinking, ‘Wow, I just got done with college, and I’ve got $40,000 debt to my name that I need to work myself out of that before I can even consider starting to put away for retirement.’ So the shift that we’re just starting to look at, and we’re only in the infancy of it right now, are student loan repayment programs, or student loan financial planning.”

McClellan and the rest of his HR team are currently in the process of researching how a student loan repayment benefit might work. There are several platforms out there right now, such as Gradifi, that help businesses like the Resort implement student loan repayment programs. Employees can sign up for the program, and employers can determine how much to contribute to the employee’s loan debt. Gradifi’s technology then automates the contribution process, turning it into a scalable benefit not unlike any employer-sponsored retirement plan.

According to McClellan, student loan repayment plans can work in a variety of different ways, depending on the employer’s preference. The starting point is always the same, with the employee becoming vested in the program and agreeing to disburse a certain percentage of their paycheck toward their student loan debt. So long as the employee is keeping up with those payments, McClellan says the employer would guarantee to make regular contributions as well – whether in the form of a fixed dollar amount or as a match based on what the employee paid.

McClellan points to tuition repayment as a logical evolution of a more common education-related benefit: tuition reimbursement. For years, the Resort has had a tuition reimbursement program that McClellan says has gone “underutilized.” The Resort even expanded that program recently, in hopes of making it more flexible and more attractive to employees and job seekers alike. In the past, tuition reimbursement was only available if employees could prove that they were taking courses that were job-related. Now, Resort employees who have been with the organization for more than a year can qualify for reimbursement on virtually any course.

The tuition reimbursement piece is also more common around Traverse City as a whole. For instance, Munson Healthcare has had a tuition reimbursement program for more than 20 years. Amy Tennis, Munson’s system director of compensation, benefits and HRIS, says the program pays out approximately $1.5 million every year for employee education and development.

Hagerty, meanwhile, offers both tuition reimbursement and Hagerty U, an employee development program that encompasses 60 different courses. Subjects for the courses range from leadership to automotive history, and are either taught in-house or via partnerships with outside consultants or Northwestern Michigan College (NMC). All Hagerty U courses are completely free for Hagerty employees.

According to Chris Schlehuber, Hagerty’s VP of people and strategy operations, 100 percent of Hagerty employees take advantage of Hagerty U courses each year. Last year alone, Hagerty employees logged a grand total of 24,000 hours in Hagerty U courses. Hagerty also offers employee scholarship programs, which fund employees as they pursue high-level insurance certifications, specialized automotive restoration skills and more.

Programs such as these help employees round out their knowledge and build valuable skills. For businesses, funding ongoing education and development in this fashion also helps fill employment gaps from the inside. Tennis says that Munson has a list of hard-to-fill positions and pays extra in tuition reimbursement to employees who pursue the courses necessary to build up relevant qualifications for those jobs.

What these programs don’t do is help an employee pay for tuition retroactively. People working for Munson or Hagerty can’t apply tuition reimbursement benefits to courses they took or degrees they earned before they were hired.

With that point made, though, both Munson and Hagerty are starting to take small steps toward helping existing employees with their student loan debt. Through Hagerty U, Hagerty will often bring in financial advisors to educate employees on how they might restructure their student loan debt to reduce interest rates and lower monthly payments. Similarly, Munson added a tuition refinance program last year, which allows employees to call a third-party company and get financial counseling on how to handle their student loan debt. Munson pays for the counseling.

“One of my employees has two master’s degrees and one bachelor’s degree, and she’s still paying on all three of them,” Tennis said. “She called [the tuition refinance company] and they combined all her debt into one payment, and lowered her interest rate by two percent.”

Through the same program, Tennis says that Munson could arrange a student loan pay down option as a signing bonus for certain positions. The program would enable Munson to make that type of payment directly into a new employee’s student loan account. Munson isn’t using that feature just yet, but might in the future.

McClellan thinks that many employers are going to be adapting and changing their strategies in the coming years, as more and more millennials join the workforce. While tuition repayment is little more than a fringe benefit right now, he expects it to become a lot more common.

“[Student loan repayment] is something that we absolutely have to look at as an organization,” McClellan said. “Already, we’ve had multiple staff members come to us and inquire about this kind of program, so we know the shift is there. What millennials are bringing to the workforce, just in terms of student loan debt, is huge. It’s an important piece that we need to consider.”