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 to offer a student loan repayment benefit in 2019
Are you looking for ways to help add more value to your talent through your 2019 benefits packages? Continue reading to learn why you should offer student loan repayment as one of your employee benefits.
With human resources managers across the country working to finalize their 2019 benefits packages this month, many are asking themselves: How can we add more value for our talent and help the company grow? For many employers, the answer is helping employees manage their student loan debt.
Over the years, student loan debt has reached an astronomical sum. As of 2008, college tuition fees rose by 439% from 1982. And by the first quarter of 2018, 44 million Americans owed a total of $1.5 trillion in student loan debt, exceeding both credit card debt and auto loan debt, according to the Federal Reserve. Not only is this an extreme amount of debt, but has also taken an enormous emotional toll, with more than half of college-educated adults (54%) surveyed by Laurel Road in 2018 feeling that they will never make enough money to reach their financial goals.
Fast forward to today, and borrowers are seeking creative ways to tackle their debt and save more. Recently, in a private ruling, the IRS granted Abbott Laboratories, a national healthcare company, the option to contribute to employee 401(k) plans based on the employee’s student loan payments. Other companies — from corporate behemoths to busy startups — have partnered with student loan refinancing companies to offer employees refinancing options that can help them save, often at no cost to the company.
With Americans quitting their jobs at the fastest rate since 2001, keeping employees happy is imperative. And part of keeping millennials happy is to provide practical benefits, not just the fun perks. Employees are looking to foster meaningful relationships with their employers — so looping in student loan repayment benefits can pay off for both the employer and the employee.
So what’s to gain? Here are some of the top reasons employers should consider incorporating student loan repayment benefits into their 2019 benefits package.
1. Recruit, retain and stand out
2. It’s flexible and free
3. Eliminate the student loan vs. retirement conflict
4. Help employees save
One of the reasons why the student loan benefit is attractive for employees is the significant savings it can lead to. If refinancing is an option, employees have the potential to save thousands of dollars over the life of their loan through a lower loan interest rate and lower monthly payments.
In the long run, the cumulative savings can add up to several thousand dollars or more. Employers should keep in mind that the savings amount will change depending on the financing company you choose to work with. Many can offer employer customers exclusive rates, which leads to even greater savings.
5. Boost morale and productivity
According to another benefits company, 31% of employees surveyed say their money concerns affect their work. Meanwhile, 74% of people feel stress daily about their student loan debt and spend time at work thinking about it, impacting their overall productivity in the workplace. So in addition to the hard savings employees are earning through these programs, they are also rewarded with the soft benefits of reduced stress and anxiety at work.
With student loan debt reaching record highs in recent years, employers have recognized that there’s a crucial need to provide employees with options to help them pay down their student loan debt. And when options like refinancing come at no cost to them, this benefit will likely become more popular. In the future, we can expect more employers to pave the way for student loan repayment programs. Will you be one of the trailblazers?
