After nearly 2 years of building student loan assistance programs, supporting employers from coast to coast, and partnering with legislators at the federal, state, and local levels, I want to lay out my observations on where the market is, where it's going, and what's driving growth.
I believe that student loan assistance will be nearly ubiquitous as an employee benefit among U.S. companies within 5 years.
In early 2015, the Society for Human Resources Management (SHRM) reported that 3% of its member companies offered student loan aid, and in early 2016, the figure rose 4%. While a nominal increase of 1% per year may not appear like a lot, it implies a 33% market growth rate, which unchanged, would mean that 100% of employers will offer student loan aid by 2028.
I believe that 80% of employers will offer student loan aid much sooner than that. And I'm not alone.
Willis Towers Watson has forecast that 26% of U.S. employers will offer student loan repayment by 2018. If we assume that the 4% of SHRM member companies offering student loan aid in 2016 were representative of all U.S. companies, then the Willis report implies that the market for student loan repayment is growing at 155% per annum.
Our growth estimate at a 66% per year is about 2x the implied SHRM growth rate and about half of the Willis Towers Watson CAGR.
We believe that today’s addressable market for student loan assistance programs encompasses the top third of employers in industries where most jobs require a college degree including professional services, technology, healthcare, and financial services.
Top firms in these industries are competing harder than ever with their peers, and across sectors, to attract college-educated talent. After all, their recruiters and hiring managers are operating in a market where more than 95% of the workforce is already employed and job opportunities for newly degreed workers are expected to grow 23% year over year.
For the early adopters, student loan assistance is a differentiator that is helping employers sign new recruits faster and retain productive team members longer -- these advantages can lead to substantial savings on the costs of hiring and employee turnover. Though the market is growing rapidly, many employers are still able to be among the first in their geography or industry to help employees battle student debt. Check out our client, Medix, a leading staffing firm that was just named Best & Brightest Company to Work For in the Nation, citing their student loan assistance program as an important response to chanllenges presented by employees.
We believe that competition for talent will be the primary driver for the next couple years as companies in the first third and well into the second third of these industries begin offering student loan assistance, and as the benefit spreads to top firms in industries that employ large numbers of college-educated workers for support and managerial roles such as retail and manufacturing.
So why will student loan assistance become adopted by the majority of U.S. employers when foosball tables and free lunches only seem to have prolifered among tech firms and ad agencies?
The first reason that student loan assistance will gain widespread adoption among U.S. employers is that it makes financial sense for employers to offer it, even beyond the hiring and turnover savings captured by early adopters:
- Companies are wasting a lot of money on traditional benefits that are not creating engagement. College-educated Millennials prefer student loan repayment 2x more than company contributions to retirement plans or supplemental insurances and 7x more than common perks like free food and gym memberships. Across all generations, student loan assistance is a more strongly considered benefit than tuition reimbursement, gym memberships, and free food.
- Recruitment expenses are for naught if candidates decline job offers. Student loan assistance is already a consideration for more than 50% of all candidates when choosing between two jobs with differeing salaries.
- Companies with diverse workforces are 15-35% more likely to outperform. Student loan repayment is more strongly preferred by women and minorities, plus African Americans and Hispanics are nearly 2x as likely to hold student debt as their white peers. These factors together are leading a number of companies to offer student loan assistance in order to accelerate their efforts to create diversity in the workplace.
- Companies with positive work cultures are more productive. Millennials report that paying off their student loans is a more meaningful accomplishment than graduting college, getting their first job, or getting a promotion. But today they're on their own...except for those who work for the companies already offering student loan assistance.
The second reason that student loan assistance will gain widespread adoption among U.S. employers is that pending tax changes will cause employees in nearly all industries to demand that student loan repayment be offered, similar to how 401(k) plans are now available to 80% of full-time American workers.
Our country is battling a student loan problem of epic proportions. Today, over 44 million Americans collectively hold more than $1.4 trillion in student loan debt and we're adding $2,726 per second as north of 70% of graduates enter the workforce with college loans -- 90%+ of which is funded by the U.S. federal government.
For the U.S. federal government, it makes sense to provide tax incentives that help citizens reduce their student debt, businesses attract college-educated workers, and that leverage employer means to reduce the 11.8%+ default rate on federal student loans.
Over the past year it has been an honor to work with several members of Congress to investigate and iterate on this solution for America's student debt crisis. We believe that Congress is likely to pass legialstion allowing American comapanies to make pre-tax contributions toward employee student loans. We are encouraged in the leadership shown by Congressman Rodney Davis (IL-13), Congressman Scott Peters (CA-52) and the bi-partisan group of co-sponsors who introduced the Employer Participation in Student Loan Assistance Act in January, during the first month of the 115th congress.
Remember that In 1978, Congress passed the Revenue Act which included Internal Revenue Code Sec. 401(k) which now helps more than 500k employers to support 61MM U.S. workers in saving over $4.2T for retirement.
Outside the U.S., we believe that student loan assistance may become popular for companies operating in countries where tuition costs and interest rates are high. In Canada new grads enter the workforce with more than $25,000 in student debt, and we're already working with one of the country's top employers to engage their workers with student loan assistance. There may be similar opportunities for employers in Japan and Great Britain. The key for international growth in this market is local employees’ perceived value of student loan repayment. If local employees have student debt, and have a strong desire to get out from under it, then employers will see a retention advantage from offering student loan repayment, and the ex-U.S. market for student loan repayment will grow.
In summary, there's still time to be the first employer in your market to offer student loan assistance, but it won't last long. For employers, the questions are:
- Are we listening?
- Are we leading?
Your employees may not walk up to you and tell you they want help with their student loans, it may be more suble. Perhaps they are not participating in the company's 401(k), or perhaps they are speaking with their feet as they choose jobs with other companies.
Depending on whose growth estimate you believe, you may have an opportunity to lead your market by offering student loan assistance next year, or it may be table stakes by then.
Either way, it's good to start thinking about how to structure a student loan assistance program in order to address the unique needs of your workforce and accomplish the goals of your business.
Earlier this year the Peanut Butter team published an employer guide to evaluating student loan assistance. Over the course of the next several weeks our team will publish additional content designed to answer frequently asked questions about employer sponsored student loan assistance. We'll also use our blog to publish updates on pending legilslation and other developments within the student loan assistance market.
If you'd like to receive updates as news comes out, please subscribe on the righthand side of this page. And if you'd like to talk with our client solutions team, just click the link below.