One of the biggest financial challenges facing many employees these days is student loan debt. It may be millennials with their own loans, or it may be older employees with loans they’ve taken to put their children through school. According to the Federal Reserve and Make Lemonade, there are currently more than 44 million borrowers who owe $1.52 trillion in student loan debt. As an employer, what does this mean to you?
Impact on employee retention
Student loan debt may influence whether a person accepts a job offer or stays on a job with you. According to research, 90% of those with outstanding student loan debt say a student loan repayment benefit would positively impact their view of an employer. More specifically, an American Student Assistance survey of millennials last year found:
- 86% would commit to an employer for 5 years if the company helped them pay off their student loans
- 93% would take advantage of a sign-on bonus aimed at paying back student loans
- 92% would take advantage of an employer match for their student loan repayments (similar to a 401(k) match)
- 89% would avail themselves of overall long-term financial planning
- 79% would use free access to a student debt loan counselor
Strategies for helping employees with debt
There are a number of ways that employers can help employees deal with their student loan debt:
Additional compensation. Some employers are offering a cash payment to be used for student loan debt repayment. For example, PricewaterhouseCooper (one of the first companies to offer a student loan repayment benefit) pays $100 per month ($1,200 per year) for up to 6 years. According to the Society for Human Resource Management, about 4% of employers are doing this. This payment is taxable compensation. And you need to be sure the funds are going to the intended purpose (see below).
Payroll assistance. You can help your employees pay down student debt and save for future education through an online platform designed for this purpose. This is a payroll deduction arrangement to withhold loan repayments and remit them automatically. It doesn’t cost the employer anything other than an administrative fee (e.g., $5 per month per participant). Such online platforms include:
One of these platforms can also be used to direct employer payments (explained earlier) toward student loan repayment, ensuring that funds go to their intended purpose.
Retirement plan arrangements. Employers may be able to make contributions to retirement plans on a tax-deductible basis to aid student loan repayment. According to a private letter ruling from the IRS, an employer can agree to make matching contributions for student loan repayment tied to its 401(k) plan. The program here included voluntary student loan repayment (SLR) contributions. Because the SLR contributions did not bar regular 401(k) contributions, the arrangement was permissible. Of course, this isn’t formal IRS advice, but other companies are pressing the IRS for more guidance on this option.
There are a number of proposals in Congress to address student loan repayment, including:
- Recent Grads in Start-Ups and Innovation Act (H.R. 6579). It would allow borrowers owning a small business located in an opportunity zone with at least one employee to defer repayment for 4 years.
- Employer Participation in Student Loan Assistance Act (H.R. 795) . It would allow employees to exclude from gross income their employer’s assistance with repaying student loans up to $5,250 annually.
In an effort to help with student loan repayment, you may be slighting employees with no such loans but with other financial concerns. Whatever you decide to do with respect to student loan assistance, ensure your actions take all employees into account.