- Student loan payment assistance has gained popularity as a way for businesses to attract and retain talent, especially young workers
- Businesses can choose to make fixed or matching payments, or come up with creative options to assist employees with student loan debt
- Companies interested in this process should first research the issue and get feedback from employees
Summary by Dirk Langeveld
As more companies struggle to attract new employees or keep the ones they have, student loan repayment assistance is gaining popularity as a recruitment and retention tool. Thanks to a provision under the CARES Act, employers offering this benefit can also get a tax break through 2025.
The COVID-19 pandemic has placed greater focus on employees’ well-being, and employers who are more attuned to the needs of their workers have enjoyed an improved reputation and fewer workforce disruptions. However, few businesses provide direct assistance with their employees’ student loans; a Willis Towers Watson survey found that only 8 percent of companies do so, though this poll also estimated that the share will increase considerably.
The issue has also gained prominence at the federal level, as the White House provides targeted assistance to some borrowers and progressives call for President Joe Biden to fulfill his campaign promise of forgiving at least $10,000 in student loan debt per borrower. A moratorium on federal student loan payments was established at the outset of the pandemic and has been extended several times, but payments will become due again starting on May 1 unless this deadline is pushed back again.
Establishing a method to assist workers with student loans can have a number of benefits for your company, but you’ll also need to consider the risks of doing so and whether the assistance is a good match for your workforce.
Student loans affect the finances of millions of Americans. This debt load has been associated with negative impacts such as delaying borrowers’ plans to purchase a home or start a family, reducing appetite for risk, and stifling entrepreneurship.
Borrowers with a substantial amount of debt can also be subject to more stress, which in turn can impede their productivity at work as well as their well-being. Some workers may take on additional jobs to try to earn enough to make their student loan payments or reduce their debt burden, negatively affecting their performance at a full-time job.
Assisting employees with student loan payments can help ease some of these detrimental impacts and potentially improve employee morale and productivity. It can also be a valuable way to attract younger talent, who may value such assistance more than traditional benefits such as retirement plans. This can also help minimize turnover costs by providing an incentive for hires to stay on board while they can receive the benefit.
Student loan repayment assistance can affect a broader range of employees than just recent graduates. For example, they can be a critical source of relief for older workers who are still carrying student loan debt while also part of the “Sandwich Generation” caring for minor children and aging parents.
Student loan debt is more likely to affect certain demographic groups, particularly Blacks, Latinos, and women. For this reason, student loan payment assistance can align strongly with a company’s diversity, equity, and inclusion goals.
The main risk of offering student loan payment assistance is that it increases costs for your company. Even if you offer modest assistance, such as $100 per qualifying employee, this can quickly add up if numerous people in your workforce are taking advantage of the benefit.
A tax break, established under the CARES Act, helps address this issue by making $5,250 in student loan assistance tax-free. This means that the sum is excluded from both the employer’s and employee’s payroll and income taxes. Although this provision was originally set to expire at the end of 2020, it was extended through 2025.
The benefit won’t be universally available to your workforce, since those without student debt won’t be able to use it. This could potentially lead to resentment by these employees, who might also seek other perks of a comparable value.
Direct payments are the easiest and most common form of student loan assistance. In this arrangement, the employer contributes a set amount of money for this purpose each month, usually with a monetary cap or time limit. Alternatively, employers may choose to match student loan payments up to a certain amount for a certain amount of time.
Employers have also come up with creative options for assisting with student loans. Some have allowed employees to cash in their vacation time or paid time off to go toward student loan debt. A Raytheon program, directed at workers having trouble saving up for retirement while making student loan payments, offers a matching 401(k) contribution if the loan payments meet company qualifications for assistance.
Employers can also consider partnering with third-party providers to help employees refinance or consolidate their student loans.
Establishing the benefit
Michael Fenlon, writing in the Harvard Business Review about how the firm PwC established a student loan assistance benefit, recommends that companies start by researching the issue and soliciting input from employees. This process will help determine the need for the benefit as well as its acceptance among workers, especially those who will not receive the assistance. If the bulk of the positions in your business require a college degree, the benefit will likely be more popular than if they do not.
Determine eligibility for the benefit. Will it be open to all employees, or only to certain workers? For example, Fenlon says the PwC benefit was limited to the associate and senior associate levels to tailor assistance to entry-level workers who were earning smaller salaries and had larger debt burdens.
Look at your budget and establish how much you’ll be able to pay toward the benefit each month. The sum should ideally be sizable enough to provide useful assistance to employees, but affordable enough that the program can be sustained. Decide how much you are willing to contribute per employee, and how many years you will continue the benefit for each employee.
Set up a system to keep track of the money you are paying to each employee so you end the benefit at the appropriate time. While employees’ financial information should be kept confidential, you should also establish a way to terminate the benefit if the employee pays off their debt before the scheduled end of the company’s assistance.
Decide on the method you will use for offering assistance. While direct payments to employees are one option, you can also make an arrangement with a third-party vendor to make your contributions directly to the employee’s loan servicer.