Workers won’t have to choose between paying off their student loans and saving for retirement with a new benefit from CommonBond, a student loan repayment benefit provider.
The company launched a new product earlier this year that allows employees who aren’t saving for retirement to receive an employer contribution to their retirement fund — as long as they’re paying off student debt. The program, called Retirement Contribution, tracks and verifies employee student loan payments so they can qualify for employer contributions.
“Employees owing student debt may not have the income to set aside for retirement,” says Tara Fung, chief commercial officer of CommonBond. “This program is for employers who want to acknowledge student debt is an inhibitor to saving for the future.”
Americans collectively owe $1.48 trillion in student loan debt, and it’s preventing them from saving for the future; 73% of people with student debt say they’re not contributing the max for retirement, according to a study by TIAA and MIT AgeLab. Of the millennial borrowers, 66% have no retirement savings at all, says a study by the National Institute on Retirement Security. That’s bad news for employers: Prudential research says every year an employee puts off retirement can cost their employer $3 million — mostly from medical expenses.
Fung says it’s critical employers consider benefit programs to address the student loan crisis if they want to stay competitive. One of the perks of her company’s latest offering, she says, is that besides administration fees, employers aren’t spending more than they’ve budgeted for if they offer their workforce a contribution match.
“It’s fair to say it’s a budget-neutral offering,” Fung says. “It simply helps employees get the retirement savings their employer is already offering.”
Employers have full discretion in how much they contribute to their employees’ retirement accounts with the Retirement Contribution program. But Fung says most of their employer clients prefer to model the contributions after the existing employer match. If employees previously needed to contribute 3% of their income to qualify for the match, employers using this new program will chip in the same percentage of the employee’s earnings. But employers aren’t limited to that option.
“Other employers elect to base their contributions off the employee’s student loan payments,” Fung says.
Most people associate the student loan crisis with young people, like millennials and Gen Z, but 74% of American undergraduate students are considered “nontraditional students” and started college at 25-years-old and older. More than 50% of baby boomers say student loan debt is impeding their financial goals.
“College isn’t just for kids; we’re seeing more baby boomers and Gen X go back to school to advance their careers,” Fung says.
Many older adults are also putting their retirement at risk for their children’s educations, Fung says. Around 3.4 million people have taken out parent PLUS loans from the federal government, owing a collective $90 billion, according to a study by Brookings Institution, a public research group. These particular borrowers tend to be forgotten by most programs designed to address the student loan crisis, Fung says.
“It’s up to the individual employer whether or not they want to help with parent student loans; our software allows it and our student loan employer contribution benefit can be applied to these types of loans,” Fung says.
Retirement Contribution, and CommonBond’s other student loan products, can be integrated into various people management platforms for easy access. Six employers currently use Retirement Contribution since the program’s inception at the beginning of the year. Fung is confident the new program will have just as high utilization rates as their student loan employer contribution benefit, which the company estimates is used by 20% of their clients’ workforce.
“We build products to help people with student loans unlock savings, accelerate life milestones, and strengthen their financial health,” says David Klein, CEO and co-founder of CommonBond.
Fung also hopes these programs will help erase the stigma associated with student loan debt, while helping employees plan their future.
“Just because somebody is unable to save for retirement, it doesn’t mean they’re not financially savvy,” Fung says. “If they’re paying their loans every month on time, they’re obviously financially responsible. They just can’t afford to do both.”
