Can you retain your employees by helping pay off their debts?

Can you retain your employees by helping pay off their debts?

For companies offering their staff debt repayment assistance, the goal is to improve the well-being of employees facing the stress of student loans. (Photo: The Canadian Press)

In 2019, Nick Smith graduated with $50,000 in debt, consisting of a $30,000 student loan and $20,000 in a student line of credit.

Caught between low-paying jobs and a high cost of living, Smith struggled to pay down his debt before he was hired as a mechanical technologist at Dillon Consulting in Halifax.

In April 2021, Mr. Smith received an email from his employer asking if he would be interested in a student debt repayment program. He didn’t take long to answer an enthusiastic “yes”.

Dillon Consulting has worked with YR Plans’ Smart Benefit program to help some of its employees pay off student debt, and officially made the program available to staff in February 2022. Mr. Smith has been part of the program since its inception at the company.

For companies offering their staff debt repayment assistance, the goal is to improve the well-being of employees facing the stress of student loans. Some companies say there is also a major benefit for employers — these programs help attract and retain employees.

At Dillon Consulting, employees can pay off student debt using employer contributions to the company’s Deferred Profit Sharing Plan, which matches employee contributions to the group registered retirement savings plan.

“Employees can contribute to their Registered Retirement Savings Plan (RRSP) and then use the Deferred Profit Sharing Plan (DPSP) match to pay off student debt,” explained Tanya Cross, partner at Dillon Consulting.

“By listening to our employees, we’ve found that the stress student loans can cause has an impact on overall well-being,” Cross said, adding that Dillon believed the ability to “take control of one’s finances » creates a better environment for workers.

Smart Benefit was founded in 2019 to help young workers in debt achieve better long-term financial results, while meeting the retention needs of employers, said communications and content director for YR Plans, Deirdre Getty.

With Smart Benefit, employees never receive the funds themselves, whether they receive them as a percentage of their contributions to a savings plan, a stand-alone benefit or a matching plan from payments. Instead, all payments go from the payroll department at YR Plans to the loan provider.

Pilot project with mixed results

Currently, five companies offer Smart Benefit, and two to three more will be onboarded by 2023, Getty added.

In July 2021, Sun Life Financial partnered with YR Plans to pilot Smart Benefit with a number of groups interested in participating in the program.

The pilot project officially started in October 2021 and should end at the end of September 2022.

A spokesperson for Sun Life told The Canadian Press that the company will not continue to offer this benefit after the pilot ends.

“After evaluating our pilot project, we decided to focus our efforts on strengthening existing solutions and our core products, helping customers achieve lifelong financial security,” the spokesperson said in a statement. by email.

While YR Plan’s Smart Benefit technology works by channeling money directly to the lender, technology company SimplyCast has been helping its employees repay their student loans by adding monthly financial support to their paycheck since 2016.

Its president and chief executive, Saeed El-Darahali, explained that he initially started the program because he was racking up nearly $60,000 in debt when he graduated and would have liked to benefit repayment assistance at the time.

For those who want to participate, the company uses a formula that takes into account the employee’s salary and the amount of the loan, to determine the amount the company will add to the paycheck each month for loan repayment. .

The formula also takes into account significant expenses and can thus filter out certain candidates. For example, an employee who owed $10,000 and lived with his parents did not meet the criteria for support because he appeared to have the ability to repay the loan on his own. It is, however, a rare example, Mr. El-Darahali noted.

“So far, not everyone who has participated in the program has left the company. So it had the effect of a retention program,” he added.

Depending on the formula, employees can receive monthly loan repayment contributions ranging from $40 to $1,000 per month.

Other Considerations for Retaining Employees

Amanda Hudson, founder of human resources consultancy A Modern Way to Work, said she sees trends like this popping up from time to time.

But when it comes to the effects of these programs, she doesn’t think most people “make decisions about where they work, or whether they should continue to work there, based on the counterpart of the RRSP or contributions to their student loans”.

“I think it’s a good strategy if you’re targeting a large number of new graduates. I think many of those benefits are opportunities for an employer’s brand to stand out from another company on the surface.”

However, if the goal is to attract and retain, Hudson doesn’t think these peripheral perks are as influential as strong human resources managers and systems, a high level of high engagement and fair wages.

Referring to a Gallup employee engagement survey, Ms. Hudson said other factors hold employees back more, including job expectations, recognition or praise for good work, and opportunities to learn and grow at work.

Mr. Smith nevertheless believes that the debt repayment support program has encouraged him to stay with Dillon Consulting longer than he otherwise would have.

Initially, he expected the repayment of his loans to stretch over 13 years.

“I would have been over 40 by the time my student debt was paid off. It was pretty dark and I didn’t really know if I was going to buy a house or a car, or have kids, because it’s hard to contemplate those things with so much debt,” Smith said. .

After he enrolled in the program, his repayment period dropped to five years.

“There is now a light at the end of the tunnel, which is comforting and alleviates some of the financial stress.”

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