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Student Loan Debt Creates Employee Benefit

student loan debt

Student Loan Debt Creates Employee Benefit

Student loan debt has created an opportunity for employers with 401k plans.  The conversation continues to swirl around creative ways of addressing the repayment of student loan debt. At the same time, the repayment of student loan debt is seen as competing for the same benefit dollars as an employee who desires to self-fund their retirement plan.  By considering offering student loan repayment programs as an employee benefit, employers are working to help employees achieve both goals — reducing college debt and building a large account balance in the employees’ 403b or 401k plan.

Student loan debt repayment programs are becoming a strategic employee benefit, particularly for younger employees who are early in their careers.  Those employees are now trying to balance work and life issues for the first time in their lives.  Student loan debt repayment programs can help all generations to pay off their education while helping them save for retirement.

The statistics about student loans may surprise many:

  • $1.48 trillion in total U.S. student loan debt
  • 2 million Americans with student loan debt
  • Student loan delinquency rate of 11.2% (90+ days delinquent or in default)
  • Average monthly student loan payment (for borrower aged 20 to 30 years): $351

(Additional Data from federalreserve.gov, WSJ, newyorkfed.org here, here and here and clevelandfed.org here)

Research from the firm CommonBond was quoted in HR Dive and reflects student loan debt repayment programs are viewed as a significant employee benefit.   These new student loan debt repayment programs help increase retention and boost workplace performance! It is no wonder that approximately seventy-eight percent of workers with student loan debt are in favor of their employer offering this benefit.

According to Forbes, student loan debt repayment benefit programs have been recognized as  the “hottest employee benefit of 2018.”

It is also encouraging that the government seems to be helping in this arena.  In a private letter ruling issued by the IRS, during August of 2018, employees can now make student loan debt payments and participate in their employer’s 401k plan. Although the IRS ruling applies to only one employer, Abbott, it sets the wheels in motion for additional employers the follow the model.

Employer steps to anticipate when adding the employee benefit:

  1. Seek competent ERISA counsel;
  2. Apply for a private letter ruling from the IRS;
  3. Consider making student loan debt payments on behalf of the employees;
  4. Seek established providers, such as Student Loan Genius, to determine repayment scenarios that will help employees to make progress.
  5. Actively communicate your company’s student loan debt repayment program to employees and prospective employees

Industry experts anticipate there will be a 24% increase in the number of companies offering student loan debt repayment programs as a company benefit. Will your company take advantage of this employee benefit when the benefit is in the embryonic stage? 

Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk
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