In 2021, more people are attending college than ever before, but a college education comes at a staggering cost. Nationally, outstanding student loan debt totals $1.52 trillion. With thousands of fresh graduates looking for job opportunities every day, the reality is that many of your employees will likely be paying off student loans while working. Luckily, a new tax break could push companies to offer student loan repayment programs/benefits.
Employer-Assisted Student Loan Repayment
Why Offer A Student Loan Repayment Program?
While employees appreciate and have come to expect traditional benefits like health insurance and paid time off, many new graduates are looking for companies that offer non-traditional benefits like student loan repayment assistance. According to a study by iontuition — a student loan management company — 8% of individuals would like to work for a company that offers student loan repayment assistance with a matching opportunity, and 49% of those individuals would prefer student loan payment contributions over an employer-sponsored 401(k) plan. With student loans being such a prevalent concern to millions of employees, offering these programs may encourage individuals to work for your company.
Current State Of Student Loan Repayment
Recently, Fidelity announced that full-time employees at the manager level or below would be eligible to receive $2,000 a year toward their student loans for a total of up to $10,000. Pricewaterhouse Coopers also announced a similar program that will give employees $100 per month, or $1,200 per year, to help with student loans for up to six years. These are just two examples of the growing trend to provide student loan repayment programs to employees.
According to a study by the Society for Human Resources Management, only 3% of employers offer student loan repayment programs at the moment. However, it’s apparent that interest in such programs is growing and a new tax break could help further push employers to provide these benefits. The key difference with this tax break is that employers are able to contribute money without having to pay taxes on it, creating a better deal for both employees and employers. This tax exemption will make it much easier for employers to get final approval on student loan repayment programs from executives.
Benefits For Employers
While the advantages are obvious for employees, it’s also important to cover the advantages these programs bring to you as an employer. The following are some of the benefits employers can reap by establishing such a program:
- Boost Recruitment and Retention: Millennials are more likely to change jobs than their older co-workers. By providing them with student loan aid from the start, or after they reach a certain tenure, you can foster loyalty to your company, reduce turnover-related expenses, and set yourself apart from competitors.
- Improve Employee Well-being: Financial stress affects more than 60% of millennials. Employees who struggle with their finances are more likely to be less focused at work, lead an unhealthy lifestyle, and incur higher medical costs since stress is a known contributor to high blood pressure and heart disease. Providing student loan repayment programs will encourage higher productivity from employees.
For many employers, the decision to implement these benefits within their company often comes down to making recruitment more competitive and ensuring that they hire the top talent available.
Student Loan Repayment Considerations
Here are some other points to consider when deciding whether to offer student loan aid:
- Tax Issues: Employers may contribute up to $5,250 per year, tax-free, toward employee student loan reimbursement under Section 127 of the U.S. tax code. From March 13-December 31, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act adds further incentives for employers. During this period, $5,250 becomes the combined limit for student loan reimbursement or other payments toward education assistance.
- Eligibility: Consider which employees will be eligible for the benefit. Eligibility could be based on tenure or the age of the loan, for instance. Also, consider what types of loans will be covered (private versus federal) since this may affect how your program will need to be set up.
- Frequency and Limits: Determine how frequently contributions will be made (monthly, quarterly or annually) and the highest amount your company will contribute, for instance up to $10,000. In addition, employers can make contributions in various ways including a fixed dollar amount, a percent of the employee’s student loan or a percentage of the employee’s salary.
- Departure from the Company: Some employers have also included provisions that state that if employees leave the company within a certain amount of time — such as 6, 12 or 18 months — they will have to refund a specified amount of their student loan benefit.
It’s essential to evaluate all of these factors to ensure that you and your employees can reap the benefits of offering student loan aid.
Employee Student Loan Aid With Alltrust Insurance
While the concept of student loan repayment programs remains relatively new, demand for student loan repayment benefits will continue to grow as more millennials enter the workforce. If you employ a large number of young professionals or if positions at your company tend to require advanced schooling, consider offering a student loan repayment program to set yourself apart from others in your industry and attract top talent. At Alltrust Insurance, we provide HR consulting to help businesses implement the right employee benefits/enhanced benefits. Contact us today to learn more about our recruitment and retention strategies and how they can help your business succeed.