How the latest stimulus bill impacts student loan benefits
With passage of the COVID-19 stimulus bill in December, Congress granted a five-year extension to a temporary provision of the CARES Act that allows employers to contribute up to $5,250 annually toward each employee's student debt on a tax-free basis.
This tax exemption was set to expire on December 31, 2020. Congress has now extended that deadline through December 31, 2025. The legislation allows employers to help pay down their employees’ student loan debt without employer contributions being taxed, similar to a 401(k) match.
By utilizing this benefit, both employers and employees avoid federal payroll and income taxes on employer payments to principal or interest on a qualified education loan, which is defined as a student loan in the name of the employee and used for their education. Federal, private and refinanced student loans are all eligible for pre-tax employer contributions. This tax exemption, however, does not apply to education loans for an employee’s spouse, children, or other dependents.
Addressing student debt at work has been a burgeoning trend in employee benefits in recent years. Even prior to this tax exemption, the number of employers offering student loan repayment benefits doubled from 4% to 8% of U.S. employers between 2018 and 2019. Providing student loan assistance has rapidly gained traction as an employee benefit because it’s often a win-win for employers and employees.
Some 47 million Americans collectively owe $1.7 trillion in student debt and that figure is not slowing down. The Congressional Budget Office estimates that over $1 trillion dollars in new student loan debt will be added by 2028. With 70% of college students graduating and beginning their careers with an average of $40,000 in debt that will take 22 years to pay off, employers have begun to recognize the social cost and impact such an astronomical level of debt has on recruiting, retention, and employee productivity.
By the age of 30, employees with student debt hold less than half the retirement savings of their peers without student loans. Student loan borrowers have delayed homeownership, getting married and having children because of their debt. Stress over how to repay student loans causes 65% of borrowers to report losing sleep at night and 1 out of 8 divorces are attributable to student debt.
When one takes that into consideration, it should not be surprising that many job seekers are drawn to employers that offer to help pay down their student loans. When young adult job seekers were asked “What percentage of your benefit compensation money would you allocate for student loan debt repayment versus an alternative benefit?” In all cases, respondents chose more money going toward student loan repayment, ahead of all other benefits, including 401(k) match, health insurance, and paid time off.
At Goodly, we work with employers to help them offer student loan repayment as an employee benefit. Across the hundreds of clients we work with, employers typically contribute between $50 to $200 per month, with the median employer contribution being $100 per month toward the employee’s student debt.
Many Goodly clients fund student loan benefits by simply redirecting existing benefits budgets, often from tuition assistance programs. This is a fairly straightforward proposition when one considers that roughly half of employers already offer tuition assistance benefits that allow employees to go back to school. Yet, these programs often see abysmal utilization with less than 10% of eligible workers taking advantage of a tuition benefit on an annual basis.
The most common approach to employer-sponsored student loan repayment is to have employees continue making their regular student loan payments. Employer payments are then made on top of that to the principal of the student loan, similar to a 401(k) match. By taking this approach, we’ve found that the average student loan borrower on Goodly can pay off their student loans 25% to 30% faster than they otherwise would with the help of their employer.
SOURCE: Poulin, G. (20 January 2021) "How the latest stimulus bill impacts student loan benefits" (Web Blog Post). Retrieved from https://www.benefitnews.com/opinion/how-the-latest-stimulus-bill-impacts-student-loan-benefits
Nonprofit launches student debt benefits program for employees
With the cost of college increasing, employers are trying to help employees tackle their student debt. According to the Federal Reserve, student debt has increased to more than $1.6 trillion. Read this blog to learn about how Northern Rivers Family of Services, a New York-based nonprofit, is paying their employee's student debt.
Northern Rivers Family of Services, an Albany, New York-based nonprofit social services organization, has partnered with IonTuition to bring a student loan repayment benefit to the employer’s 1,400 employees.
Northern Rivers decided to take on the student loan problem by offering employees the valuable wellness benefit, which is also a powerful recruitment and retention tool, company representatives said. Indeed, student loan debt has soared to more than $1.6 trillion, according to the Federal Reserve, yet only 8% of employers offer their workers a student loan benefit, according to the Society for Human Resource Management.
“Student loans are a growing concern for today’s workforce,” says Linda Daley, chief human resource officer with Northern Rivers. “Sixty-five percent of our staff holds a bachelor’s degree or higher, and they’re saddled with the burden of student loan debt.”
Some employers that offer student loan repayment programs include Trilogy Health Services, Selective Insurance, Travelers Insurance, Wayfair and New Balance.
Employees with Northern Rivers will have access to a complete suite of student loan repayment tools plus a monthly contribution program, including concierge student loan advising, free accounts for family members, unbiased refinancing, default and delinquency recovery services, and college research tools.
“The repayment program is available for all benefit-eligible employees at Northern Rivers, which is approximately 1,060 of our employees,” Daley says. “With the IonTuition platform, the program was easy to roll out and our employees were immediately equipped with all the tools they need to reach financial wellness.”
Employees must have a minimum of six months with Northern Rivers to sign up for the contribution plan in which the organization will pay $35 a month toward employees’ student loans.
“Attracting and retaining quality talent in the nonprofit space is challenging,” Daley says. “This benefit gives our employees the security that their student loan payments are more manageable. ”
SOURCE: Schiavo, A. (16 December 2019) "Nonprofit launches student debt benefits program for employees" (Web Blog Post). Retrieved from https://www.benefitnews.com/news/nonprofit-launches-student-debt-benefits-program-for-employees
5 reasons employers should offer student loan repayment benefits
Did you know: Currently, American families carry more than $1.6 trillion in student loan debt. Because of this, some employers are now adding student loan repayment benefits to their employer-sponsored benefits offering. Read this for five reasons why employers should offer student loan repayment benefits.
As every employer knows, benefits can be both expensive and difficult to manage. So then, what could possibly be the advantage of adding more expenses to the budget — especially ones that go beyond traditional benefits like health insurance and paid time off?
Candidates have options in the current job market, which allows them to be picky about where they choose to work. With employees in the driver’s seat, we’re seeing a workforce that is increasingly focused on companies that show they value their workforce.
One way some employers are doing this is by adding perks such as student loan repayment benefits. American families currently carry more than $1.6 trillion in student loan debt, the question of providing student loan assistance is not an “if,” but a “when.”
Will your company alone solve the country’s student loan debt crisis? No. But, ultimately, going beyond the standard of offering traditional benefits is a mark of your authenticity and genuine nature as an employer. An investment in student loan benefits demonstrates your investment in the financial wellness of your people.
Luckily, student loan repayment benefits are easy to implement and require very little maintenance once launched. Because this voluntary benefit doesn’t have to align with open enrollment, you can set the new standard for how employees should be treated immediately. Here are five reasons employers should already be offering student loan benefits.
1. Employees are actively seeking this benefit
The amount of student loan debt is staggering — currently, more than $600 billion more than the amount of credit card debt in the United States, according to LendingTree. Considering nearly everyone has a credit card and only some have student loan debt, it’s safe to say the path of higher education can have a negative financial impact for those relying on loans.
Most often, employers think the only way to help employees with their student loan debt is through contributions, but that’s not the case. Contributions aren’t a prerequisite for student loan benefits. As roughly 250,000 borrowers default on their loans each quarter, employees are actively seeking help in managing their student loan payments. With delinquency and default of student loans on the rise, you can still set employees on the right track with a student loan repayment benefit, even if you can’t afford the price tag of contributions.
2. You’ll be the employer of choice for top talent
With a low unemployment rate, the battle for the best talent is fierce. Student loan repayment assistance is a huge advantage when employees have a choice in which company to work for. Nearly three years ago, 86% of workers said they would commit to a company for five years if the employer helped pay back their student loans, according to the nonprofit American Student Loan Assistance. Yet, the Society for Human Resource Management reports only 8% of companies currently offer this type of benefit — which means those who do, may have an edge over the competition.
Today, the most successful companies don’t just focus on seeking out incredible candidates, they’re looking for ways to make the most desirable candidates come to them. Student loan assistance is a very differentiated offering — but it won’t be that way for long.
3. The benefit can help employees reach life milestones
Today, the millennial generation makes up a significant amount of the working population — but, as they’ve continued to enter the workforce over the last decade, millennials have held off on making major life purchases. Why? Because some of the most prominent markets in our economy, such as housing and higher education, have gotten drastically more expensive and salaries haven’t increased at a rate to match these rising costs.
However, if you think student loan debt is only an issue for younger generations, think again. All generations are making sacrifices because of student loan debt. In fact, 57% of Baby Boomers feel student loans are getting in the way of retirement.
Naturally, people with less debt have more money to spend in other areas. When companies help employees reduce their student loan debt, significant life milestones — like buying a house, starting a family, sending their children to college or saving for retirement — are more attainable.
4. Improved employee retention
The smartest companies aren’t just looking to attract the best talent, they’re looking to keep it. Turnover has a negative impact on business — both financially and culturally. The average cost of each employee departure is one-third of that worker’s annual earnings and, in 2020, roughly one in three workers will voluntarily quit their job.
Voluntary benefits like student loan repayment might seem like they will cost your business but, even just for the sake of keeping exceptional employees, they’re a worthy expense. Aiding employees in tackling some of their debt makes a significant difference in whether or not they want to continue working for you. Your workers are human beings. When they’re cared for in such a way, employees are more inclined to stay with a company where they’re valued.
5. Employees will be happier
Happiness is contagious. Happy employees are both more productive and have a positive impact on company culture, which absolutely makes a difference for your business. But, when more than half of people are regularly stressed due to financial issues, it has a personal and professional impact on employees.
Financial stress is one of the biggest burdens a person can face — and not something your employees can simply leave at the door. By offering student loan assistance, you’re not only eliminating some of the stress affecting your employees, but you’re also opening more financial doors for them and creating a company culture they’ll want to shout about from the rooftops.
SOURCE: Grewal, S (17 October 2019) "5 reasons employers should offer student loan repayment benefits" (Web Blog Post). Retrieved from https://www.benefitnews.com/list/5-reasons-employers-should-help-with-student-loans
What’s in store for voluntary benefits in 2019
Voluntary benefits will continue to be popular with benefit managers who are trying to lower healthcare costs and retain employees. Read this blog post for more 2019 voluntary benefits trends.
Benefit managers are still catching their breath as the curtain closes on this year’s open enrollment season. But smart benefits managers are already evaluating new products and benefit changes for the 2019-2020 season.
Themes around cost-saving strategies concerning healthcare premiums will continue to resonate — but what else will happen in the upcoming year? Voluntary benefits will continue to hold the key for many benefit managers looking to lower costs and maintain value for employees by providing flexibility to a diverse workforce.
Voluntary benefits offer pivotal advantages to employers and employees alike. By offering these programs through an employer, employees often receive better pricing, plan designs and underwriting support compared to what is available on the individual market. Payroll deduction capability and enrollment as part of their normal core enrollment process and portability are also available.
Here are three voluntary benefits to watch in 2019.
Employee purchase programs.
Nearly one quarter of all Americans do not have adequate emergency savings, according to a survey by consumer financial services company Bankrate. This means that if they need to make a significant purchase, they are likely to withdraw a loan from their 401(k) plan.
Employee purchase programs help employees pay for items they may need immediately, but may not have the funds or credit available. These programs generally allow employees to spread out the payments on the purchased products — such as appliances, car tires or computers — over a period of time through payroll deduction. Young employees who are trying to establish credit while managing student loan repayments — and may be strapped for cash — can especially benefit from an employee purchase programs.
Group legal insurance plans.
Group legal plans are not new, but they are still valuable for employees. For a cost that is less than a cup of coffee, group legal plans provide employees with access to attorneys for will preparation, estate planning, dealing with elderly parents, traffic violations, real estate purchases, and document review and preparation. These plans offset the expense of professional legal representation and the time it takes to locate the right representation to handle legal matters.
These plans may be especially valuable to employees who are thinking of buying a house, adopting a child or planning for their estate. Still, group legal insurance plans are available to all employees, and can provide a buffer for workers who may need to navigate identity restoration after a theft or combat an unforeseen traffic ticket. These plans also save employees time and money when the need for a legal professional arises.
Student loan benefits.
Student loan benefits have been one of the hottest topics in voluntary benefits in 2018 and it’s not going away any time soon. An IRS private letter ruling this past August allowed one company to amend its 401(k) plan to allow employer contributions of up to 5% to individuals who contribute at least 2% to their student loan. This may just be the start to more legislation concerning student loan debt solutions.
In the interim, as the tuition debt crisis grows, employers are seeking ways to support their employees. There are several strategies that can be employed.
Some solutions can be offered at no cost, while others have administrative charges and the cost of contributions to factor in. For employers who have the budget, a student loan repayment plan may be the answer. There are many vendors who can partner with an employer to help develop a plan that is designed to meet the company’s goals.
Employers without a budget can seek a student loan solution partner that offers comprehensive educational tools such as written materials, debt navigation tools, FAQs, one-on-one counselors and webinars. Another option is to offer student loan refinancing. These lenders can help employees manage their debt. Even though refinancing is not for everyone, well-vetted student loan refinancing partners should be considered as part of a comprehensive student loan debt solution strategy. Understanding the approval rate is important, as well as whether there are any other incentives, such as a welcome bonus, that may be applied to the loan principal.
SOURCE: Marcia, P. (28 November 2018) "What’s in store for voluntary benefits in 2019" (Web Blog Post). Retrieved from: https://www.benefitnews.com/opinion/whats-in-store-for-employers-and-voluntary-benefits-in-2019