Student loan borrowers are preparing to either resume payments or start making them for the first time since March 2020. Currently, federal student loan payments are scheduled to resume 60 days after June 30. That can change if the Supreme Court rules on President Joe Biden’s student debt forgiveness plan, in which case payments will resume 60 days after the ruling.
Student loan debt has grown to $1.76 trillion during the pandemic and with the average monthly payment being $400, borrowers are looking for relief.
Fortunately, a growing number of companies are helping employees pay off their student loans as a benefit. Signed into law in March 2020, the CARES Act allows employers to make tax-free contributions of up to $5,250 per employee per year to an employee’s federal and private student loans. Employer contributions are exempt from Social Security and Medicare payroll taxes.
Mick MacLaverty, Co-Founder & CEO of Highway Benefits – a startup helping companies offer student loan repayment as a benefit to employees – says offering student loan repayment is a desirable perk that can help attract top talent.
“Student loan repayment is one of the most effective benefits an employer can offer to maximize the impact of each dollar,” MacLaverty told HR Daily Advisor. “Not only does this get more money to employees to help them reduce their loans, but it’s a powerful competitive tool to help employers hire talent. In fact, 86% of borrowers said they’d commit to a company for five years if it helped them pay off their loans. Before the pandemic, student loan repayment was one of the most requested employee benefits. Now that loans are resuming for the first time in three years, there has already been an uptick in interest from companies trying to get ahead of the adoption curve.”
In this week’s HR Query, read on to find out the process necessary for businesses to offer student loan repayment as a benefit, the value of doing so, and more.
Why is student loan repayment especially important this year?
MM: It’s highly likely student loan payments will resume in 2023 and equally likely that many borrowers will still have loans to pay even if the current debt forgiveness plan goes into effect. Borrowers need to prepare to start paying an average of around $400 a month, a significant amount that 89% of borrowers say they are not ready for. One way to do this would be to seek out employers that offer student loan repayment as a benefit, which was made tax-free in 2020 but is still not yet widely adopted.
What is the process for a business to offer student loan repayment as a benefit?
MM: It’s actually quite easy for businesses to offer student loan repayment as a benefit. The two major decisions a business needs to have made before adopting this benefit are:
- A sense of how much they want to contribute to each employee’s student loans.
- What criteria (if any) employees need to satisfy to be eligible to receive a contribution.
What are the benefits of organizations offering student loan benefits?
MM: It’s important to understand that student loans are a major source of financial stress for employees. Given that, Student Loan Repayment (SLR) is the most valuable benefit an employer can offer for three reasons. First, employer’s contributions to employee’s student loans are tax-free up to $5,250 per year, so it makes full use of every dollar spent. If employers raised salaries by the same amount, the employee would get less than $4000 after income taxes and an employer would be on the hook for payroll taxes. Second, student loans are a required expense for 45 million Americans, so repaying them is oftentimes more valuable than other fringe benefits.
It’s estimated that employees’ financial stress can cost companies up to $500B each year in lost productivity so the impact of tackling one of the biggest sources of financial stress can’t be understated. Last, student loan repayment benefits can be a powerful and prescriptive way for companies to tackle their talent goals. Everyone benefits from student loan repayments. Offering this benefit now while it’s relatively uncommon will help employers stand out, attract top talent, and prevent attrition. In fact, 86% of employees said they would commit to an employer for five years if they helped them pay their student loans.
What can employees who are interested in this benefit do if their employer does not offer it?
MM: Employees can talk to their employer about a student loan repayment benefit. Many people aren’t aware that their employer can actually contribute up to $5,250 tax-free per employee per year to their employees’ student loans (federal or private). The best part is that because these contributions are tax-free, employees will not have to pay any income taxes on contributions made to their loans.