This Company Helps Employees Pay Student Loans and Save for Retirement
U.S. companies are creating program to help employees pay off burdensome student loan debt, which has accumulated to $1.6 trillion for the nation’s student loan borrowers. There are many companies that are offering student loan repayment assistance, including SoFi, Staples and Fidelity Investments.
One company, Abbott Labs, a Chicago, Il.-based health technology company, is offering a fantastic student loan repayment program.
The “Freedom 2 Save” plan allows employees dealing with student loan debt to direct the 2% minimum they’d make to their company 401k plan into their student debt repayment plan. In turn, the employee would earn a 5% company match to be used as a 401k plan contribution.
The 5% company match is treated like a 401k contribution taxwise, as it grows tax-deferred with no immediate tax involved, as most employee-sponsored cash rewards are taxed. Additionally, there is no waiting period tied to Abbot’s Freedom program and there’s no contribution cap tied to program funding.
So far, an estimated 1,000 employees have signed on to the Abbot program.
Employees who use the program “don’t have to pay a dime” to receive student loan repayment benefits. According to company calculations, if staffers remain in the Freedom program for 10 years, and have an average starting salary of $70,000, they’d earn an extra $54,000 in their 401k plan – as long as they keep diverting the 2% plan minimum toward their student loan debt.
Those figures assume 3% annual merit increases and a 6% average annual market return on investment.
Why Abbott Offers Student Loan Repayment Assistance
Call it a student loan and retirement plan hybrid, for lack of a better term. All Abbott Labs knew was that it needed to save employees from high student loan debt.
“Our employees have invested a lot in themselves to earn their way into Abbott, and we don’t want student loans to prevent them from beginning to save when time is on their side,” said Steve Fussell, executive vice president of human resources at Abbott, who retired shortly after the plan rollout. “With this program, we’re changing the retirement savings formula. If you’ve got old school debt, we’ve got new-school retirement investing.”
“We see our young professionals coming to us with a problem – student loan debt payments keep them from setting aside the money they’d like to put in savings for retirement,” Fussell added, “Helping them with this challenge is the right thing to do.”
Abbott noted that it hires about 1,000 staffers under the age of 35 annually, and the vast majority of those new hired have student loan debt. The company says that two-thirds of employees under the age of 35 either have a doctorate or master’s degree.
Abbott also reports that the average amount of student loan debt from employees who participate in the program is $38,000, with a high debt range of $300,000.
Demand is High for Company Student Loan Repayment Help
Intrigued by the overwhelming response from staffers looking for help with their student loan debt, Abbott paired up with the data research firm YouGov to study the demand (and impact) companies can have in alleviated worker’s student loan struggles.
These results come from the company’s 2019 study of 2,600 Americans with student loan debt:
- 90% of career professionals want to work with a company that will financially help them pay down their student loan debt.
- 42% of student loan borrowers aren’t saving for retirement because of student loans, including 50% of borrowers with student debt ages 18-34 and a 33% of borrowers over 55 years-of-age.
- 75% of African Americans and Hispanic Americans with student loan debt say finding an employer with a student debt employee benefit is important, with 50% saying it’s “very important”
- Yet only 4% of companies offered a cash reward for paying student loans, as of June, 2019, to help workers pay off their student loans – but that number will jump, with 33% of employers expected to do so by 2021.
More Companies Expected to Help Repay Student Loan Debt
The Internal Revenue Service is not only on board with the concept of companies helping workers save for retirement and pay off student loans at the same time – it’s using the Abbott Freedom plan as a blueprint.
In a recent ruling called “The Abbott Plan”, the IRS has ruled that workers at any participating company who diverts 2% of his or her salary to student loan debt repayments, can legally receive up to a 5% company match toward that company’s 401k plan.
With Uncle Sam’s seal of approval, expect the Abbott plan to be emulated by companies across the U.S. with two primary goals – attracting young talent and motivating those staffers to not only pay off their student loan debt, but start saving for retirement, too.
Other Options for Repaying Student Loans
While the opportunity for employer assistance with repaying student loans is increasing, it isn’t available to everyone. But there could be other option for repayment help.
Could you pursue student loan forgiveness? There are many careers paths that could potentially lead to you to student loan forgiveness, including teachers, nurses, healthcare professionals, lawyers and those working in public service.
Should you refinance private student loans? Refinancing private loans could potentially result in a lower interest rate, which can help you save money and pay off your student loan debt quicker. Another benefit of refinancing student loans include streamlining your loans into one simple payment, reducing the chances of missed payments and late fees. Keep in mind that when refinancing federal student loans, you’ll lose those perks that come along with federal loans, including potential for forgiveness, more deferment options and income-driven repayment plans.
Do you have leftover money in your 529 college savings plan? Maybe you or your parents saved for college in a 529 college savings plan, but you still borrowed student loans. Or perhaps you saved for your child’s college and didn’t use all the money in the account. You can now use money from a 529 account to pay student loan debt.