'Til debt do us part': a case for employer sponsored debt benefits

Amid a great demographic workforce shift, employers would do well to consider the advantages of student loan repayment assistance

'Til debt do us part': a case for employer sponsored debt benefits

These days money matters, as in every dollar counts. Inflation, rising interest, new taxes, supply issues, record-level debt, all these factors conspire to impair financial well-being for employees. CIBC’s annual ‘Financial Priorities’ poll identified debt repayment as the number one goal for Canadians for 2022.

But first, student loans

A must-have in any debt conversation today is student debt – now reaching $27 to $30+ billion dollars in Canada, with some provinces already announcing tuition increases. The Canadian average shows 56 per cent of post-secondary graduates enter the workforce with, on average, slightly over $26,000 in federal and provincial student loans. Typically, federal financial assistance covers 60 per cent and provincial student aid provides the other 40 per cent. Industry recruiters and hiring managers could benefit from knowing that over 60 per cent of their recruits may be highly motivated by their outstanding debt.

Out of school and after a six-month grace period, repayment starts. Typical repayment terms for government student loans last 9.5 years and, with the popularity of the Repayment Assistance Program, it’s not uncommon for repayment to take longer.

An Ipsos poll conducted in 2017 on behalf of BDO found two-thirds of Canadians under age 40 with a degree or diploma graduated with student debt. Of those, 62 per cent were still repaying their student loans and expected to need another five years to become debt-free. It’s five years on now, let’s hope they were successful.

Stress and Benefits

It is well-documented that employees of all ages suffer chronic stress because of student loans. Even with low or no interest attached to their loans, payments ranging from $150 to $400 each month create a financial burden.

According to the Financial Consumer Agency of Canada, almost half of working Canadians admit that stress related to personal finances has had an impact on their performance at work.

Employers know this. The proactive ones take deliberate steps with the benefits they offer to help their employees minimize financial and other stresses, knowing it ultimately helps the business.

Employees admit that benefits influence their career decisions. In the ‘Hays Salary Guide 2021,’ 53 per cent (of respondents) cited the benefits package as the most important factor after salary when considering a new role.

And in the case of student loan benefits: the ‘Peanut Butter Millennial Benefit Preferences Study’ discovered 85 per cent of the millennials surveyed said if given the choice between two jobs, they’d choose the one that offered student loan repayment as a perk. Relatively new to the benefits world, student loan benefits are gaining momentum.

Last November, CNBC reported 17 per cent of U.S. employers were currently offering student loan debt assistance and another 31 per cent plan to offer it. Prior to the COVID-19 pandemic, eight per cent of employers offered student loan repayment assistance as a benefit.

Made In Canada Solutions

In November 2021, Calgary, AB-based Yr Plans Inc. launched a Canadian solution for employer-assisted student loan repayment.

As administrator and record keeper, it enables companies with existing group savings plans to bring in student loan repayment alongside retirement savings. The parallel savings and debt repayment strategy provides choice and flexibility for plan members, in complete alignment with today’s financial priorities.

Employers provide flexibility by allowing employees to direct a portion of the employer pension contribution (match) toward student loan repayment. Software enables the monthly transaction straight from payroll to the employee’s government loan provider, becoming an extra student loan payment for the employee. John Kenny, founder of Yr Plans, says, “onboarded participants will reduce their repayment time by 55 per cent and save 48 per cent of the cost of the loan.”

Other plan designs prioritize employee saving, notably where student loans may prevent long-term saving. Employees in this arrangement are eligible to receive an annual savings contribution when they are actively repaying student loans.

Ripe For Change

The time seems right for employers to review their benefit offerings. A great shift in employee demographics is already upon us as there are more people leaving the workforce than entering. More than five million Canadians will turn 65 this decade. As the massive baby boomer generation exits the workforce, succession will occur from within the much smaller cohorts of Millennials and Zoomers (aka Gen Z). Transcending every industry, the boomer exodus will leave worker shortages that could last for decades. Recruitment will be fierce and benefit preferences of younger generations, predictably different.

A recent Ipsos poll conducted on behalf of RBC Insurance revealed 49 per cent of younger working Canadians said their employer’s benefit plans have not adequately met their health and wellness needs over the last year. Other surveys show that eight in 10 Canadians would like more flexible and individualized benefit programs.

And not only would they ‘like’ more flexible benefits, but employees are clearly changing jobs to get the benefits and flexibility they desire. The ‘great resignation’ is not over . . .

Retention > Resignation

Employers can update retention strategies to sidestep resignations, especially important in this tight labour market. And given the high cost of replacing an employee, solutions which create employee loyalty will be prized by employers and valued by employees.

Industry chatter is all about how benefits packages help to build employee loyalty and reduce turnover. With growing awareness of employer assisted student loan repayment, industry people are now pointing to the benefit’s numerous attributes.

Considering how student loan debt weighs heavily on many young employees, the inclusion of student loan repayment benefits can offer companies a major competitive advantage in attracting and retaining people, and helping businesses save money.

Student loan repayment assistance and other employee debt solutions stand out among contenders when it comes to innovative financial wellness options for employees.

Group RRSPs (registered retirement savings plans) and DPSPs (deferred profit-sharing plans) are the most popular plans Canadian employers access to offer the benefit to employees. Employers are also choosing to include student loan repayment help in flexible benefit arrangements.

Incorporating student loan repayment assistance into a defined contribution pension plan has yet to be done, but all it takes is one plan sponsor willing to make an amendment, and, in theory, why not? The obvious advantage in the pension model is the favourable tax status of contributions.

For now, contributions into a student loan repayment benefit are taxable in Canada. The future will tell if bigger changes are required to get student loan debt issues under control here. Recent tax changes in the United States, where the student debt numbers are staggering, have led to the provision that allows employers to make tax-free contributions of up to $5,250 a year to their employees’ student debt. It’s a bill they aptly call the Employer Participation in Repayment Act.

“I don’t know if Canada’s student loan debt load will bring about changes in tax legislation,” says Kenny, “but I’m hopeful our employer-sponsored mortgage relief benefit will prompt Ottawa to take note.” He anticipates they will introduce a ‘Mortgage Relief’ benefit in the fall of 2022, operating on a similar principle as its first commercial student loan repayment product, ‘The Smart Benefit.’


Deirdre Getty is a communications spokesperson for Yr Plans, Inc.