Getting Help from Employers to Pay Down Student Loan Debt
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Getting Help from Employers to Pay Down Student Loan Debt
In an effort to attract top talent and retain it, companies get creative; the bigger they are, the more creative they can afford to be. Top concerns such as health insurance and flexible working arrangements are heeded by many employers, but another one of big concern among younger people is their student loan debt. At present, total private and federal student loan debt as of 2024 stands at $1.74 trillion (down slightly from 2023), with the average borrower owing about $29,000 (sources: The Federal Reserve and the Institute for College Access and Success); average student loan debt per person now exceeds car-loan debt and credit card debt. Among the Millennial generation, this debt can be substantial and can interfere with reaching traditional goals such as buying a home or starting a family. Generation Z, the next youngest group of employees, may have it just as bad in the years ahead. As well, many Generation X employees and some Baby Boomers are still paying off their loans.
Things To Know
- Student loan debt can be substantial and can interfere with reaching traditional goals such as buying a home or starting a family.
- An employer may make a regular contribution to employees’ student loan balances.
At this time, only a very small percentage of companies offer student loan-related benefits, meaning that there is room for potential growth and creative solutions. A number of options for employer involvement exist, which we will look at now.
Contributing directly to the loans
Similar to 401k and other retirement plans, an employer may make a regular contribution to employees’ student loan balances. Unlike other benefits, this one need not be set up during open enrollment. The contributions can vary greatly from company to company, but they are generally a monthly payment set by the employer.
The benefit may include restrictions such as a minimum length of time worked, a minimum number of hours per week worked, a cap on the monthly or yearly employer contribution, and a cap on the total contribution per employee. Some companies restrict the benefit to employees in non-managerial roles. Others require that the student loan be in good standing, that is, not in default or behind in payments.
Employers may provide contributions in the form of percentage matches instead of set amounts. For example, an employer might agree to match a certain percentage of an employee’s salary if the employee makes regular payments on the loan balance.
Generally, employees still have to make regular payments to their debt; meanwhile, the company match is sent to the loan provider and applied to the principal of the loan, thus reducing its overall size more quickly than a payment that includes interest.
These benefits are not included in the employee’s taxable income, as part of recent legislation. Employers may provide up to $5,250 in yearly student loan repayment without it being taxable to the employee or the employer. This limit is a combined limit that also includes tuition assistance programs, which are a different benefit. Any assistance above this amount is taxable as wages.
In response to growing interest by employers, some startup companies have sprung up to act as vendors that administer perks such as these. They handle the logistics of verification of debt and payment of the employer contributions.
Linking employer contributions to a 401k plan to employee student loan payments
As noted already, student loan debt is such a financial burden for many younger people that it interferes with their ability to save for other important goals in life, such as retirement. Although retirement may be many decades off, it is wise to begin planning for it as soon as possible. Early savers benefit from the positive effects of growth and compounding over time. But many younger workers do not make retirement a priority. Reasons include rent costs, healthcare costs, and of course, the often-crushing weight of student loans.
Uncle Sam is now offering help via the Secure 2 Act, passed in late 2022. The law allows employers to match employees’ student loan payments with matching contributions to their retirement accounts. This gives workers an incentive to save while paying off their own educational loans. The law took effect in 2024.