Student Loan Repayment Programs a “Hot” Benefit
Student loan repayment programs received quite a bit of buzz in the employee benefits industry and the media in 2018. The spotlight continues to shine on the student loan repayment program for employees, particularly for individuals struggling to repay hefty student debt while also working to save for retirement. By considering offering student loan repayment programs as part of a robust benefits package, employers can help employees achieve both goals — eliminate college debt and build adequate savings for retirement. And, the employer can accomplish this while improving recruiting and retention efforts to compete for talent.
According to HR Morning, student loan repayment programs are a key benefit, particularly for younger employees who are just starting their careers. They are now trying to balance the financial complexities of “adulting” for the first time in the “real world.” The good news is, student loan repayment programs can help workers of all generations pay off their college debt while simultaneously saving for retirement. In addition, offering student loan repayment programs can help companies boost their retention, and likely, improve retirement plan participation rates, especially among younger employees.
To set the scene, here are some statistics about student loans and their impact on the workforce:
- $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
- Median monthly student loan payment (for borrower aged 20 to 30 years): $203
Recent research from fintech firm CommonBond quoted in HR Dive shows that student loan repayment programs are a key benefit that not only helps increase retention and boost workplace performance, they also help strengthen recruiting efforts. Seventy-eight percent of workers with student loan debt, including 65% of workers with current or future loan debt, want their employer to offer this benefit.
Nonetheless, just 4% of employers, including Estee Lauder, Pure Insurance and Carhartt, offer student loan repayment assistance programs, according to a recent Society for Human Resource Management (SHRM) survey. However, according to Forbes, per HR Morning, student loan repayment program benefits are the “hottest employee benefit of 2018.”
A private letter ruling from the IRS, issued in August 2018, now allows employees to repay student loans and participate in their employer’s 401k plan. The IRS ruling applies to just one employer — Abbott, a health company — but it paves the way for others to make an ask for similar offerings. Under the Abbott plan, employees make a student loan repayment of a minimum of 2% of their pay and the company contributes a match to employees’ 401k accounts that are equal to 5% of their pay.
Here’s how employers can embrace the growing trend of student loan repayment programs:
- Apply for a private letter ruling for their company from the IRS
- Offer to make a student loan repayment on employees’ behalf: According to HR Morning, “Many employers pay a specified monthly amount – usually $50-$100 a month (with a cap of roughly $10,000) – to help pay employees’ loans.” In addition, third-party administrators, such as Fidelity’s Student Debt Employer Contribution program, have come into being to assist employers with their student loan repayment programs.
- Provide student debt assistance: Some employers are teaming up with providers, such as Student Loan Genius, to offer employees one-on-one advice to help them determine repayment scenarios that make the most sense for them.
- Use student loan repayment programs to attract top talent: For example, Prudential in 2017 began giving new employees hired via its campus recruiting program $5,000 to help pay off their student loans after one year of employment.
According to HR Morning, industry experts predict there will be a 24% increase in the number of companies offering student loan repayment programs as a benefit. Will yours be one of them?
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