Forget gym vouchers or compressed work weeks. The hottest employee benefit right now is student loan repayment assistance. While only four percent of employers are offering this perk to date, more and more companies are creating student loan repayment programs.
The average borrower has over $28,400 in student loan debt. With such crippling balances, it’s no surprise that millennials prefer student loan repayment benefits over 401(k) plan contributions. By adjusting your benefit offerings, you can stand out from the competition and get the best employees.
How does student loan repayment work?
Because student loan repayment benefits are still so novel, there is no set of guidelines or rules companies need to abide by. Generally, the company agrees to pay a certain amount — either a set figure or a percentage of salary — towards their employee’s student loan debt.
Companies of all sizes and from different industries are jumping on this trend. From large Fortune 500 companies to small and lean startups, businesses understand the value student loan assistance offers potential employees.
How much a company will contribute, and for how long, varies from employer to employer. For example, Fidelity will pay $2,000 a year towards student loan balances, up to a maximum of $10,000. PricewaterhouseCoopers, on the other hand, offers $1,200 a year towards paying down educational debt for up to six years.
What are the tax implications?
As of 2016, student loan repayment is viewed very differently by the Internal Revenue Service than tuition reimbursement perks. While employees can offer over $5,000 to employees, tax-free, for going to school, student loan repayment benefits are taxable to the employee. It’s treated as taxable income, so the employer can either deduct tax directly from the payment or the employee may be responsible for it herself during tax time. While employers can deduct tuition reimbursement, there is no such incentive at this time for student loan repayments.
There are attempts to address this issue at the federal level. One of the latest is the proposed Student Loan Repayment Assistance Act, which would make student loan repayment benefits similar to 401(k) plan contributions. The business and employee would enter into an agreement and the contributions would not be taxable as income or payroll.
While this bill is not likely to get passed this year, it does signal that conversations are happening, both in the government and private sectors, to change how student loans are handled. It is probable that a solution will be identified in the future that will incentivize employers to offer student loan repayment benefits to help manage the national student debt problem.
What are the benefits to employers?
For startups looking to recruit and retain top talent, offering student loan repayment benefits can be a cost-effective way to stand apart from other businesses. By offering student loan assistance, your company will experience many benefits:
Recruitment: For young professionals, finding a company that understands their needs is a powerful motivator to take on a job. Offering student loan repayment benefits indicates that you understand the pressures facing millennials, giving you a significant recruitment tool to attract the best and brightest. Since just a small number of companies currently offer this benefit, adding it to your list of perks can help you emerge as potential employee’s first choice.
Job-hopping deterrent: While many young professionals leave a job after just a year or two to pursue more lucrative opportunities, getting help with their student loans can keep them in place much longer. With hefty student loan balances, many employees will be reluctant to leave student loan assistance programs behind and more likely to stay in their current roles. By structuring the benefit as a yearly gift up to five years of service, you can increase the odds that employees will remain in their position to get the full benefit.
Morale: Employees face a great deal of stress, between work and family life. Significant student loan debt, keeping up with payments, and facing decades of repayment can create serious additional anxiety. Such stress and anxiety can impact work performance as well as employee satisfaction overall. So by helping workers with debt, you can help relieve anxiety and enhance productivity. Additionally, when you invest in them as individuals, they will be more likely to feel invested in the company’s success.
Student loans and the workforce
With the national student loan debt reaching over $1.3 trillion, student loan repayment benefits will become an increasingly popular employee perk. Since companies benefit from talented, college-educated young professionals, offering student loan assistance is a natural step. By adding this perk to your startups benefits, you can recruit and retain top talent that can make valuable contributions to your company’s growth.
What steps are you taking to create millennial-driven growth in your business?