Another Way Employers Can Reduce Debt Loads

Numerous companies have struck deals to help their employees attend college. Employers may help their workers more, Karen Gross argues, by paying off their existing student loan debt.

July 10, 2015

Much has been written lately about the growing partnerships between private and public employers and institutions of higher education. This can be seen as a strategy for closing the achievement gap. Yet some have questioned whether these programs truly benefit employees, especially because many of the educational offerings are limited to one prescribed educational provider. What if that one provider is not a good fit for particular employees? What if the educational institution does not offer quality programs or offerings in which the employee has an interest?

Because the devil is in the details in terms of the effect and effectiveness of these partnerships, I have argued that the jury is still out. There certainly are enough concerns that we should be cautious about jumping on the bandwagon. I worry about two particular issues: How many employees will actually take advantage of the benefit and proceed to a degree or a certificate (or is it just window dressing)? And what monies will employees actually need to put on the table themselves (books, fees, portion of the actual tuition, vacation time to visit campus?), and won’t that be a real deterrent to participation?

And there is the ongoing issue of quality, as measured by both the employees and the employers. Is what is being taught/learned valuable to the employer, and is the employee receiving the best adult education available, with state-of-the-art andragogy?

Here is another idea that deserves some attention and has not been pursued rigorously in the private sector, to the best of my knowledge: instead of paying for prospective education, what if employers helped employees repay (or at least pay down) their existing student debt?

The suggested approach here accomplishes two goals that are high the education priority list: (1) college completion for those who have stopped or dropped out and are deterred by existing debt loads, and (2) high debt levels for graduates who cannot see their way clear to participate more actively in our economy through home purchases, car purchases, marriage with or without children, and community activities.

Employer repayment initiatives are different from public service loan forgiveness and income-based repayment. Most public loan forgiveness mandates employment for at least 10 years (for teaching, it is five years) in one of the permitted positions like policing, nursing and military service in areas with hostility. Employment in for-profit positions (such as banking, business or law firms) is clearly not within the ambit of these programs. Income-based repayment does not eliminate the debt totally until decades into the future. The impact on one’s credit score remains unclear for both programs, in my view.

So, we know default rates are high and rising. We know that student debt loads impact when graduates make certain purchases, such as cars and homes, which are key to our nation’s economic stability. We know that some weddings are deferred and some career choices are impacted dramatically by prospective earnings -- not necessarily negative, but it does lead to impaired choice. And the debt is also affecting graduates’ savings for retirement. It also is burdensome psychologically for many students -- notwithstanding Lee Siegel’s cavalier attitude toward default, nonpayment and marrying well.

There is no one magic formula for how this program could be implemented by employers. Here are some possibilities.

Employers could pay a portion of their employees’ proven student debts after a certain number of months (or years) employed. This could apply to those students with an earned degree or perhaps expanded to those who stopped or dropped out. Say employers repaid 5 percent of debt after one year of employment and each year thereafter. Repayment amounts could be graduated up or down over time. The amount repaid could be capped at a predetermined dollar amount.

Or employers could actually pay a certain fixed sum on the existing student debt. If that number were small, then capping might not be needed.

Of course, the tax treatment of this benefit would need to be considered and factored into the structure created. Suppose, too, that with this benefit, there was an employee commitment to work for the employer for a preset number of years (say, five). We do not allow forced employment and mandatory injunctions -- yes, we cannot make the opera singer sing. So those employees who left could find they owed the employer the amounts already paid for student loan debt repayment. There would certainly be employer debt collection costs, too, if this occurred.

Several key features that are positive and make this approach doable: the employer would pay the government or the private lender directly. The employee would receive proof. To ease administrative burdens, the payments could be made biannually. Now, this program could allow employers to hire competitively and graduates might be steered to employers offering this benefit. Perhaps certain industries in need of quality employees could be the thought leaders on this.

Consider, too, the psychological benefits for employees who see their loan balances reducing. Their focus on work-related issues could increase. Educational institutions would benefit, as their default rates would be reduced, and that would positively impact their prospective students’ eligibility to access federal student aid.

As with many benefits, the loan repayment program will not necessarily have value to all employees, such as those with no student debt. That is true for other employee benefits, like tuition for children of employees (not helpful if you have no children) or health insurance that some get from their partner/spouse.

But here are ways the loan repayment program could be expanded: it could cover Parent Plus Loans or other loans to enable employee parents to repay the loans they undertook for their children. Or, for those with no debt, there could be the offering of educational benefits to the parents (who could need a graduate or undergraduate degree) at a comparable level.

My point is this: student debt is capturing the news. The current answers focus primarily on two approaches: government-offered repayment options that take years to satisfy (and where the uptake is not matching eligibility in part due to information asymmetry, although efforts are being made to improve this), or free -- perhaps almost free -- college tuition at public and hopefully other institutions, with different bells and whistles depending on who (including presidential candidates) is making the proposal.

But the latter suggestion -- despite much to be said in its favor -- does not affect current student debt loads of graduates holding a wide range of jobs, in and outside the public sector. The free approach is prospective looking, which is valuable but far from immediate even if enacted today. But we have millions of students now who owe trillions of dollars. This employer benefit approach could help these graduates across the job categories (or perhaps those who stopped or dropped out) in short order. Not a bad benefit for everyone -- employees, employers, the government, educational institutions, our economy.

It is a relatively immediate multiple win-win-win and worth benefit specialists' and economists' consideration, ASAP.


Karen Gross is former president of Southern Vermont College and former senior policy adviser at the U.S. Department of Education.


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