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HR: Student Loan Repayment as Compensation

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HR: Student Loan Repayment as Compensation

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The current state of employee student loan burdens in the United States (as of 2015) along with best practices for improving recruitment and retainment while tackling the issue.

The current state of employee student loan burdens in the United States (as of 2015) along with best practices for improving recruitment and retainment while tackling the issue.

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HR: Student Loan Repayment as Compensation

  1. 1. Student Loan Repayment as an Employment Benefit Kelvin Chu Sean Feeney
  2. 2. Background ● Traditionally, large employers trained their own workforces (Examples: Nucor Steel, Ford) ● With the expansion of compulsory (and public) schooling in the early 1900s, industry collaborated with local schools on skills and curriculum required of their incoming workforce o Modern example: Kentucky Occupational Skill Standards (KOSSA) high school assessment o This also continues today in the form of candidate pipelines at preferred colleges
  3. 3. The Perfect Storm ● As we became a post-industrial society competing in a global knowledge economy, college diplomas became a prerequisite to the most basic of jobs ● This coincided with o The American business community expanding the socialization of workforce training costs through collaborations with schools o College tuition rates rising much more rapidly than the cost of inflation o Public funding of college attendance not keeping up with the rising costs
  4. 4. The Perfect Storm (in charts) Private lenders begin lobbying Congress to remove student loan bankruptcy protections
  5. 5. The Perfect Storm (in charts) Bankruptcy Protections
  6. 6. The Perfect Storm (in charts) Yellow is inflation-adjusted state financial aid paid per student. Red is inflation-adjusted out-of-pocket tuition costs paid after all non-loan financial aid is exhausted. http://economix.blogs.nytimes.com/2012/03/02/why-tuition-has-skyrocketed-at-state-schools/?_r=0
  7. 7. The Problem So what is “the other 98%” to do at the risk of being unemployable? Take on student loans to cover the difference. http://www.motherjones.com/politics/2013/06/student-loan-debt- charts Bankruptcy Protections
  8. 8. The Problem 70% of undergrad students, of your employee pipeline, now have student loan debt burdens.1,4 Student loan debt disproportionately affects minorities and those from less advantaged households. ● 81% of African-American grads have student loan debt.2 1. http://blogs.wsj.com/numbers/congatulations-to-class-of-2014-the-most-indebted-ever-1368/ 2. https://cdn.americanprogress.org/wp-content/uploads/2012/10/WhiteStudentDebt-5.pdf 3. http://hereandnow.wbur.org/2012/05/15/student-loans-debt 4. Student Debt and the Class of 2013 - Institute For College Access and Success The class of 2014 owed an average of $33,000 per student.1 10% of students owe more than $54,000.2 3% of students owe more than $100,000.3
  9. 9. Why Should HR Care? ● Financially unstable employees are more likely to job hop, seeking higher pay to try and cover student loans which have no legal recourse for discharge. ● Student loan lenders are known to actively research work phone numbers and disrupt your employees at work, hounding them for repayment. ● Student loans disproportionately affect minorities, making it that much more difficult to recruit and retain a diverse workforce. ● Studies have found that “cumulative student loans [are] significantly and inversely associated with better psychological functioning.” Sick of our loans: Student borrowing and the mental health of young adults in the United States - Walsemann, Gee, Gentile
  10. 10. Why Should HR Care? Studies have shown that higher levels of debt can lead to stress, which can ultimately lead to health issues ● ex. high blood pressure, heart disease, anxiety, weaker immune system ● This would in turn increase healthcare costs for businesses The high price of debt - Sweet, Nandi, Adam, McDade
  11. 11. The Opportunity ● With the competition for talent being fierce, companies are turning to exotic / fringe benefits to recruit and retain employees. (Examples: Facebook, Google) ● To stand out to prospective employees, and retain the ones you have, you should offer student loan reimbursement as a form of compensation. (NPR) - Kelsey Griffith of Ottawa, OH, graduated with a 4-year degree from Ohio Northern University with $120,000 in debt. The payments start at $900/mo. http://hereandnow.wbur.org/2012/05/15/ student-loans-debt
  12. 12. The Small Leap to SL Reimbursement ● Many companies, acknowledging the edge that higher education offer its workforce, have long offered tuition assistance as a form of benefit. ● This benefit is often structured as a reimbursement after a course has been completed. ● We propose expanding this into post- tuition reimbursement (student loan repayment).
  13. 13. Best Practices - Retain “While a repayment program will likely bring significant costs, it will pay dividends in the long run.” -Ann Hollingsworth, HR, Memorial Hermann Health System ● MHHS in Houston, Texas is one of the latest employers to set up a student loan repayment benefit program. ● Full-time and part-time employees who have earned a degree within the last three years are eligible. ● Employees must commit to stay with MHHS for at least two years after the final loan repayment. ● The program is paid for through the lower, overall cost of hiring people due to a higher retention rate and increased productivity from more engaged employees. http://www.bizjournals.com/houston/morning_call/2015/02/ major-houston-employer-to-help-repay-employees.html
  14. 14. Best Practices - Recruit ● Montana found it difficult to recruit public school teachers in rural areas. ● The Office of Public Instruction set up a student loan repayment assistance program for targeted areas. ● Teachers were eligible for student loan repayment assistance of up to $3,000 a year for four years, for a total of up to $12,000. ● 141 teachers were awarded $417,000 in student loan repayment assistance. ● Mississippi has a similar program. http://www.kaj18.com/news/mt-teachers-in-critical-shortage-areas-may-get-student-loan-help/ http://higherednotdebt.org/blog/montana-wants-employers-pay-employees-student-loans If Montana HB341 passes, all Montana employers would get a tax credit of up to $450/ employee annually for up to three years against either their corporate or individual tax income, if they directly kick in $1,800 to lower their employee’s student loan debt.
  15. 15. Best Practices - Public Sector ● If your employees qualify as public servants, the Consumer Financial Protection Bureau recommends structuring your student loan repayment program around existing government student loan forgiveness programs. ● Help your employees fill out the Public Service Loan Forgiveness (PSLF) paperwork. ● Directly make the monthly loan payments for your employees, instead of providing the benefit in a lump-sum. Cincinnati City Councilman P.G. Sittenfeld in 2014 announced the city’s College Affordability Assistance Program, which educates employees about PSLF and helps them with the paperwork. http://files.consumerfinance.gov/f/201308_cfpb_public-service-toolkit.pdf

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