Student Loan Repayment Benefits

Question:

We have recently heard that Student Loan Repayment is a benefit that some employers are offering their employees. What is Student Loan Repayment? How does it differ from tuition assistance? What are the main benefits of student loan repayment for the employer?

Answer:

No doubt about it, millennials are graduating college with a staggering amount of student loan debt. This debt causes a lot of strain on young graduates just beginning their careers. According to The Institute for College & Success’ September 2019 Report, the average college student graduates with upwards of $29,000 of student loan debt. Having these large loans so early in life has caused the millennial workforce to value employer benefits differently than with past generations.

What is student loan repayment?

There are many ways companies are choosing to address the student loan debt issue facing their workforce. Although it is a relatively new benefit offering, the Society for Human Resource Management (SHRM) reports that in 2019, 8% of employers are now offering student loan repayment assistance. This can be done in a variety of ways:

  • Paid time off (PTO) trades-this type of program would allow employees to exchange the money they would have earned taking time off work, to instead pay down a student loan. Unum will be beginning this program in 2020, allowing for employees who would normally carry over up to 40 hours of unused PTO time to allocate the dollars into a payment for their student loans instead.
  • Student loan repayment plans-employers can elect to make contributions, typically on a monthly or annual basis, to the employee’s student loan servicer. In 2017, Aetna began offering this benefit to its employees contributing up to $2,000 per year to the loan servicer, with a maximum benefit of $10,000 per employee.
  • Contributions to an employee’s 401(k)-the idea is that if the employee pays a certain percentage of their salary towards their student loans, the employer “matches” a percentage of that and contributes funds to the employee’s 401(k) program. This enables the employee to pay off their student loans while still saving for retirement, which often gets put on hold until student loans are paid off. Abbott’s Freedom 2 Save program offers full and part time employees who are paying at least 2% of their income towards student loans to receive the company’s “match” deposited into their 401(k). This is an interesting option to consider due to the tax benefits 401(k) contributions receive and considering that the other options are, at least for the moment, considered taxable income.

How does student loan repayment differ from the traditional tuition assistance?

Traditional Tuition Reimbursement (or Educational Assistance) programs differ from student loan repayment programs, because they require the employee to be actively taking courses. Whereas, student loan repayment focuses on helping employees pay back loans for a degree or schooling they have already completed. Unlike student loan repayment, tuition reimbursement is not considered taxable income under Section 127 of the federal tax code and allows for employers to reimburse employees up to $5,250 per year, as long as the program meets requirements as detailed by IRS Regulations.

What are the main benefits of student loan repayment programs for the employer?

Right now, the main benefit this provides to employers is the potential attraction of top talent to the organization. If a college grad is deciding between two opportunities, and you offer Student Loan Repayment, the chances of the candidate choosing you increases exponentially!

Also, according to SHRM, legislation was reintroduced in February that would enable employers to award tax free student loan repayment assistance for up to $5,250 a year per employee. This would match the tuition assistance amounts that are currently in place and enable employers to claim deductions for these payments as well.

Bottom line: In a fight for talent, any additional benefit like student loan repayment that you can offer your employees is potentially the tipping point to attract talented workers and retain them!

Providing adequate Benefits and Compensation for your employees is key to the recruitment and retention of a well performing workforce, and having the right policies in place can make or break a company. strategic HR inc. understands this critical need and can help you structure your benefit and compensation system to meet today’s competitive market. Please visit our Benefits and Compensation page for more information on how we can help get you competitive today.