WASHINGTON—Record student debt and associated borrower stress is spurring more employers to offer student loan repayment benefits to their employees, according to a new CFPB report.
The report features a series of recommendations to help employers and other companies that manage benefits programs ensure that borrowers receive the maximum value.
“In response to historic levels of student loan debt and evidence that it can have a far-reaching impact on borrowers’ lives, employers and other actors such as state governments have sought new ways to assist in managing this debt. This assistance is typically offered as an employee benefit where payments are sent directly to borrowers’ student loan servicers,” the CFPB explained. “Borrowers may use the employer contributions to prepay principal on their student loans or to replace all or a portion of their monthly student loan payment. Because student loan borrowers typically have multiple loans, each with different loan terms and repayment schedules, employers often outsource the administration of these benefits programs to third parties. These companies are often fintech or technology-platform companies that issue third-party payments to student loan servicers.”
The Bureau’s report highlights issues identified by student loan borrowers, as well as shares feedback from a range of private and public-sector entities including employers providing student loan repayment benefits to borrowers.
Highlights of the report include:
- Growing number of employers offer repayment assistance to employees with student debt: Recognizing that student debt can have a domino effect on consumers’ financial lives, separate industry and media reports suggest increased interest among both large and small employers in helping employees pay down student debt. One industry survey shows that nearly one-in-10 employers with over 40,000 employees offer a third-party repayment assistance program. These programs may be designed to support recruiting efforts, improve retention, or supplement wellness benefits, among other goals, the report stated.
- Student loan repayment assistance can save some borrowers hundreds or thousands of dollars: Borrowers may save hundreds or thousands of dollars in interest payments over the life of a loan when employers prepay student debt. For example, with a 10-year, $30,000 loan at 6% interest, an employer paying $100 a month will save the borrower more than $11,000 over the life of the loan. Alternatively, borrowers may free up cash by using their benefits to replace all or a portion of their monthly student loan bill. However, the Bureau’s report also warns that many of the most vulnerable borrowers – for example, those in default – may not have access to benefits offered under a typical employer program.
- Servicing problems can create roadblocks to providing and improving student loan repayment benefits: Companies and other benefit providers caution that problems initiating, transmitting, and processing payments may hinder certain borrowers’ ability to maximize the benefits of repayment benefits. These roadblocks may deter consumer-friendly developments that could better support employees repaying student loans and may reduce the potential value of employer payments. These practices also may make it difficult for employer programs to coordinate with other federal student loan benefits that could increase the value of these programs, the CFPB said.
- Employers and benefits administrators can tailor programs to better meet employees’ needs: Student loan borrowers’ circumstances vary widely, and repayment assistance programs do not have to be one-size-fits all. The Bureau notes that certain types of employers are uniquely situated to tailor repayment benefits to fit the specific needs of their employees. For instance, a nonprofit organization or government agency can better tailor its benefit programs to complement public service benefits that may be available to those repaying their federal loans under an income-driven repayment plan, the CFBP explained.
The report, titled “Innovation Highlights: Emerging Student Loan Repayment Assistance Programs,” is available at: http://files.consumerfinance.gov/f/documents/cfpb_innovation-highlights_emerging-student-loan-repayment-assistance-programs.pdf