Many of us are all too familiar with the student loans, but thanks to a new program unveiled by Fidelity Investments, repayment aid from your employer may soon be an option.
The problem? It probably won’t do much to address the deep racial disparities of the student debt crisis.
According to BuzzFeed News, Fidelity announced Thursday that a new plan will let companies make regular payments directly to workers’ student loan balances. Think 401(k) contributions, but with your school debt.
Fidelity Vice President Kenneth Ericson told BuzzFeed that the company’s seen “big demand” for this kind of benefit, and that offering it could help companies “recruit new employees and retain existing ones.”
It’s the recruitment and retainment piece that’s key here. Some companies have already been offering this kind of assistance, but BuzzFeed notes that Fidelity’s move signals that employer-subsidized student loan repayment may soon become a mainstream benefit—one that workplaces would have to offer to stay competitive.
But while the assistance would certainly do much to lighten the load for individual employees, it doesn’t attack the student debt problem at its root. And it may even relieve governments and educational institutions from the obligation to address the problem.
This is particularly an issue for black graduates, who are shouldering a disproportionate amount of student loan debt.
Late last year, The Atlantic ran a piece that illuminated the problem, analyzing a Brookings Institution report that showed black graduates, four years after graduating with their bachelor’s degree, had almost double the amount of debt that their peers—white, Latino and Asian—had.
Even more striking, those grads didn’t receive their diplomas with that big a gap. Upon graduating, black graduates actually had less student debt than their Latino and Asian classmates, and only $7,400 more than their white peers. However, four years later, the gap between black and white grads had grown nearly four times larger.
Here is a graph that ran in the original article:
But why won’t employer-assisted student loan payment help these grads? There is still not much data that could tell us why that troubling gap exists, but The Atlantic article offered a few possible factors:
Some of it has to do with the fact that black borrowers have higher default rates, which may be partially tied to the fact that black college graduates earn less than white graduates. Separate studies have suggested that hiring managers are sometimes less likely to consider someone with a “black-sounding name,” and that black workers are paid less than white workers for the same job.
But the biggest contributor could actually be grad school:
[Researchers] found that 45 percent of the black-white gap is a result of differences in borrowing for post-baccalaureate studies. While 40 percent of black college graduates pick up debt to pay for these courses, only 22 percent of white graduates do the same. One factor is that blacks with bachelor’s degrees are more likely to go to graduate school at all. Almost half of the 2008 cohort of black graduates the researchers studied enrolled in graduate school within four years, compared to just 38 percent of white graduates. But crucially, of the black graduates who continue their studies, 28 percent sign up at a for-profit school, compared to less than 10 percent of their white peers.
Because more black graduates continue their studies after receiving their bachelor’s degree, and because they have a higher rate of attending predatory for-profit institutions, that puts them further in debt without actually advancing their employment options, and they’re more likely to accumulate a staggering amount of debt.
As the BuzzFeed article notes, having employers subsidize their employees’ debts doesn’t actually help mitigate the cost of college; nor does it help the students and grads who are struggling the most. It certainly doesn’t rein in predatory for-profit colleges—a task left in the hands of Education Secretary Betsy DeVos.
In fact, having companies pay for their employees’ student loans could likely only benefit high-earning grads. And if Congress decides to make those employer contributions tax-exempt, as it has for 401(k) plans, that could create more inequality. As one source told BuzzFeed News, this is because taxpayers would end up shouldering the burden of paying off loan debts for grads who have landed the good, fairly high-earning jobs that can offer this package.
Fidelity’s plan, then, while encouraging, is a Band-Aid solution that does little to address the crisis, particularly for black graduates drowning in debt.