Well-intentioned programs might be ill-advised for some borrowers, experts caution
Digital art by Tamara Rees
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Veterinary medicine's largest private-practice owner, Banfield Pet Hospital, rolled out a pilot benefits offer today aimed at easing student debt, a burden affecting an estimated 2,600 or more of the 3,500 veterinarians the company employs.
The program enables Banfield veterinarians who owe on domestic school loans to tap an employer contribution of $150 per month paid directly to their loan accounts. The contribution is available as long as they are employed by the company and have a student-debt balance. They also may obtain an interest-rate discount of .25 percent if they opt to refinance loans with a private lender, CommonBond, that Banfield has enlisted to manage what it calls the Banfield Veterinary Student Debt Relief Pilot Program.
Banfield also is offering lump-sum loan payments to new hires who participated in the company's student programs while they were in school. The company will pay $2,500 per program, up to $10,000, to qualifying veterinarians after 12 months of employment.
With these offerings, Banfield joins a small but growing number of U.S. employers attempting to address the specter of outstanding student-loan debt, which totals some $1.4 trillion and constitutes 10 percent of household debt, second only to mortgage debt, according to the Federal Reserve Bank of New York. A survey by the Society for Human Resource Management found that 4 percent of employers in 2016 offered student-loan repayments, up from 3 percent the previous year. Large companies providing the benefit include Aetna, Fidelity and PwC. In June, Memphis said it would become the first city in the U.S. to do the same.
Employer student-debt benefits can be tricky to manage because of variations in how the debt is structured. Unlike mortgage debt, education debt can involve multiple lenders and a combination of government and private loans, and — in the case of federal loans — multiple choices in repayment plans, each of which has its own peculiarities and conditions.
In the veterinary profession, managing student debt is exceptionally challenging because of the high cost of education and low incomes compared with those of physicians and other medical professionals. Veterinarians who graduate with debt on average owe more than $167,000 each, while their average pay is $73,626, according to American Veterinary Medical Association statistics. That debt-to-income ratio of well over 2-to-1 is more than twice what economists consider a reasonable debt load.
Stephanie Neuvirth, Banfield Senior Vice President of People & Organization, said her company's debt-relief offerings are part of a multi-pronged effort to promote workforce health and well-being. "We want to commit to programs that provide an environment that help our doctors be at their very best," Neuvirth said.
Banfield is one of several practice chains owned by Mars Inc., the largest single employer of veterinarians in the world. Banfield operates more than 1,000 clinics in the United States and Puerto Rico, most of them in PetSmart stores.
Veterinarians' high debt poses special challenge
How much the company's specific student-debt offerings prove beneficial will depend upon individual borrowers' circumstances.
Debt experts warn that some elements of employer debt-relief programs, such as private-loan refinancing, might do more harm than good. The reason is that loans held by the federal government — which constitute the vast majority of education debt — are eligible for a variety of repayment options, including eventual forgiveness, as well as deferments under certain conditions. Private-loan repayment terms tend to be far less flexible.
American Student Assistance, a nonprofit organization that informs student borrowers about debt and repayment options, warns against refinancing federal loans with private lenders, noting in a 2016 article: "[T]he interest rate may appear attractive, but you'll lose all your benefits and protections like unemployment deferments and income-driven repayment plans."
Dr. Anthony Bartels, debt-education director at the Veterinary Information Network, an online community for the profession and parent of the VIN News Service, said employer student-loan benefits are likely to be helpful to borrowers with relatively low debt and debt-to-income ratios of less than 1-to-1 (meaning they owe less than one year's income), but not necessarily veterinarians, due to their outsize loans and high debt-to-income ratios.
"There's not going to be a lot of examples of big corporations with employees that have the magnitude of loans and debt-to-income ratios that we see in veterinary medicine," Bartels said.
Bartels particularly is critical of programs that promote a private-refinance option. Refinancing federal loans into private loans is a bad idea, he maintains, unless borrowers have a debt-to-income ratio of 1-to-1 or lower, plus high job security and the intention and ability to pay their loans in full in 10 years using approximately 10 percent of their income.
He explained: "For those ... with debt-to-income ratios of two or more, the total paid using [a federal] income-driven repayment will result in a lower effective annual interest rate and lower total repayment costs than almost all private refinance offers recent graduate veterinarians receive."
And while there's no harm in refinancing loans that already are private, he added, most student loans are federal.
Pitches to refinance student loans are not uncommon. In 2016, the American Animal Hospital Association announced a partnership with SoFi, which it described as the largest provider of student loan refinancing in the U.S. In 2015, the AVMA's insurance trust, called AVMA Life, partnered with Credible, a company that facilitates private refinancing of student debt.
AVMA Life CEO Libby Wallace acknowledged in communications with VIN News that refinancing might not be right for everyone but that some veterinarians might find the service useful because Credible provides "access to a variety of competitive loans, which may be able to assist them in reducing their outstanding student debt." She said, "[O]ur goal is to provide a variety of options so individuals can make the choice that suits their situation best.”
When a dollar is worth less than a dollar
Bartels said he appreciates that veterinary advocacy organizations and veterinary employers wish to address the debt problem but that meaningful assistance requires a full understanding of the ins and outs of debt-repayment strategies. Considering the complexity of student-loan repayment, such understanding can be elusive.
Payment processing errors an impediment
Even contributions from employers can induce headaches when they're paid directly to the servicers who manage federal student loans. A report issued in August by the U.S. Consumer Financial Protection Bureau describes problems with loan servicers rejecting payments from third parties; not crediting accounts in a timely way; and accepting payments but never crediting them to the borrower's account.
"Industry stakeholders highlight a complex process for making third-party payments driven by student loan processors' legacy information technology, all-too-frequent processing errors, and the servicing industry's lack of a standardized process for handling third-party payments," the bureau reports.
Banfield's Neuvirth said the concept of third-party payments on student loans is so new that everyone is finding their way. "From an HR [human resources] perspective, this is a very complex topic, one that is a big challenge for all employers as they look at their total rewards package," she said. "Today, there are not a lot of employers who have robust programs to share their learning."
Bartels said providing payments directly to employees rather than making payments on their loan accounts would give them maximum flexibility to manage their debt. Some employers do. American Student Assistance, the nonprofit borrower-education organization, reimburses employees up to $600 per quarter on their student-debt payments, according to Allesandra Lanza, director of communications for the Center for Consumer Advocacy, which operates under American Student Assistance. Employees must submit proof of payment.
Lanza said employees may use the employer contribution to pay down their debt faster, or they can apply it to other uses.
Bartels said letting borrowers manage the employer contribution is especially helpful if their loans are under a federal income-driven repayment plan. Such plans enable borrowers to make monthly payments that are based on their income, rather than the size of the debt. Under such plans, after 20 to 25 years of payments, loan balances are forgiven. For borrowers banking on eventual forgiveness, there is little benefit to paying more than the prescribed monthly amount, Bartels said.
Neuvirth said Banfield considered making payments directly to employees. "We had quite a bit of discussion about that topic," she said. Ultimately, program designers opted to make the benefit more distinct from a bonus or incentive compensation. "We wanted this specifically directed to the reduction of student debt," she said.
The contribution should be considered a supplement to rather than a substitute for loan payments the employee makes, said Dr. Kirk Breuninger, a Banfield veterinarian who participated on the project planning team and serves now as program ambassador.
As such, even borrowers using income-driven repayment and aiming for forgiveness should see a benefit, Breuninger said. That's because forgiven sums are treated by the government as taxable income. Therefore, the smaller the balance at the end of the payment term, the smaller the tax hit.
"Whether [a borrower is using] standard repayment or income-driven repayment, we're aware that the $150 will benefit those different groups in different ways," Breuninger said. "If they're on a standard repayment plan, that $150 will reduce the life of the loan. For those that are on income-driven repayment, if they are paying out that loan all the way to the term when it becomes forgiven as taxable income, this $150 a month will help to reduce the ultimate tax burden at the end of that time."
As for concerns about converting federal loans into private loans through refinancing, Breuninger emphasized that employees may receive a company contribution regardless of whether they refinance. "This is not a one-size-fits-all," he said.
Neuvirth noted that since March, Banfield has provided free access to the services of Student Loan Genius, which gives guidance on managing student debt. The benefit is available to full-time Banfield doctors and their family members.
'Every little bit helps'
Breuninger has personal knowledge of and experience with heavy student debt. He graduated in 2010 owing more than $200,000 in school loans. Initially, he used an income-driven repayment program, he said, then switched to a standard payment plan when his income rose.
After crunching the numbers on his debt, Breuninger told VIN News by email: "Based on my calculations and assuming I'm employed by Banfield for the duration of my student loans (I hope to be!) I anticipate a 1.4-year reduction in the life of my loan by taking advantage of the $150/mo option."
Another Banfield veterinarian who plans to accept the $150 employer contribution is Dr. Beverly Miller. Upon graduation in 2005, she had amassed $140,000 or so in debt from a combination of federal and private student loans. Miller consolidated the federal loans, then refinanced them all into a private 20-year loan. Her monthly payment is $700. Her husband has student debt, too, albeit not as large.
The parent of two children, one approaching college age, Miller appreciates any contribution toward her debt. "Every little bit helps," she said.
Miller said she expects to forgo refinancing, even though it wouldn't cause her to lose federal consumer protections because her loan already is private. "As of right now, I do like the [lending] company I have and the way we have [repayment] set up, and the customer service," she said. Still, she said, it is good to know of another option.
More broadly, Miller said she is heartened by Banfield's attention to the profession's debt problem. As a medical director in Atlanta, Miller works with 18 hospitals that together employ more than 50 veterinarians. She estimates that the "overwhelming majority" have student debt.
For the company, deciding how much to contribute toward employee debt wasn't simple. Breuninger said: "That's part of the reason we're calling this a pilot. We weren't certain what would be the most appropriate amount. We did have a number of focus groups [with employees] and got feedback on what would be appropriate for them. We're going to start with this, and we'll monitor the response and get feedback from our associates on how well it is benefiting them."
Because a employer contribution is taxable income, Banfield also will give participants a monthly "gross-up" to cover taxes triggered by the contribution.
How many veterinarians will sign up for the program is as yet unknown. Company officials say they have no data on the proportion with student-loan debt, but Neuvirth estimates the figure is "north of 75 percent," considering that Banfield's veterinary workforce is young: The average age is 31, and roughly half of new hires are new graduates, she said.
This article has been changed from the original to correct the name of the organization American Student Assistance.