More companies are courting workers by paying off their student loans
Millions of debt-ridden college graduates want help paying off their student loans. This year, they can simply get it from their employer.
While a growing number of companies have begun offering student loan repayment as a social benefit in recent years, the combination of new tax relief, fierce competition for workers, and increased attention increased to the country’s growing student debt could lead to a big increase in benefits this year.
About a third of companies say they plan to introduce student loan repayment assistance in 2022 or 2023, with 3% already planning a rollout this year, according to research by insurance company Willis Towers Watson. Additionally, companies with existing programs are enhancing benefits through larger contributions and broader eligibility parameters, experts say.
This kind of growth could take what has been a relatively niche advantage – it’s currently offered to less than one in 10 companies – and bring it into the mainstream.
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Employer contributions to student loans increase
The value of a student loan repayment benefit varies by industry, but in general, companies are more generous with their monthly contributions.
Gregory Poulin is co-founder and CEO of Goodly, a San Francisco-based student loan provider and fintech company. Among Goodly’s customers, the average employer contribution to student loans has increased by about 50% since the pandemic hit, he says. Before the pandemic, companies typically contributed an average of about $83 a month to each employee’s student loans. That figure is closer to $150 today, and top payouts can be as high as $400, Poulin says.
In some cases, companies with existing programs are simply setting aside more money for profit. Fidelity Investments, which launched its program in 2016, recently increased the maximum lifetime limit per employee from $10,000 to $15,000.
And Chegg, the student-focused learning platform that was an early adopter of student loan benefits, has started increasing payments based on seniority. All full-time employees with student debt have received up to $1,000 in student loan payments each year since the program began. In 2019, the company added a new entry-level employee program through vice-president-level workers who have been with Chegg for at least two years. These employees are entitled to a maximum of $5,000 per year, in addition to cash payments of $1,000. Chegg manages this benefit differently than other companies, selling company stock grants, a form of company stock, on behalf of executives and using a portion of the profits to support its loan relief program. students.
Other companies have launched completely new programs. McLaren Health Care, a hospital network operating in Michigan, launched a new student loan assistance program at its Flint facility this month. Payouts start at $200 per participant, per month. McLaren then increases the amount to $300 in the second year of participation and $450 in the third year.
The program is for employees in high-demand positions, including registered nurses, respiratory therapists, pharmacists and medical technologists. McLaren Flint will pay a maximum of $15,000 for eligible employee student loans.
Most repayment assistance programs are designed so that employees must continue to make their minimum monthly payments, and then the employer contribution acts as an additional payment. This helps employees pay off debt faster while saving money on interest.
Let’s say you owe $30,000 in student loans at an interest rate of 4.6% and the term of your loan is 10 years. You would pay $312 per month.
With a monthly contribution of $150 on top of your monthly minimum, you’ll pay off your loans in about six years instead of 10. Increase the employer contribution to $400 per month and you’ll be debt free in less than four year.
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More employees have access to student loan assistance
It is not just the contributions that are increasing in certain companies. Eligibility parameters are also expanding.
When the Texas-based Memorial Hermann Health System introduced a student loan repayment benefit in 2016, the goal was to attract top talent and address the nursing shortage, says benefits director John Eshleman. social aspects of the hospital system. The program was an early success – Memorial Hermann found first-year retention with RNs increased 12% in the first two years of the program.
The company currently pays up to $400 per month for loans related to clinical degrees or up to $200 for loans related to non-clinical degrees. The lifetime limit is $20,000 per employee.
Memorial Hermann began by offering this benefit only to employees who had graduated within the last three years. In 2020, it was expanded to apply to employees who graduated within the last five years.
“We’ve helped our employees reduce their student loan debt by over $5 million,” says Eshleman.
In addition to increasing its lifetime maximum, Fidelity also expanded eligibility to its advantage last year. The company ended a waiting period that required employees to spend at least six months with the company before getting the benefit. Now, workers can register from the first day of their employment.
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Student loan assistance is now a better deal for employees
One of the biggest reasons student loan repayment assistance is poised to keep growing is because it now makes more sense for business bottom lines, experts say.
Before Congress passed the CARES Act in 2020, employer contributions to an employee’s student loans were considered part of the employee’s income, meaning employees had to pay tax. on income on the amount of student loan repayment assistance they were receiving. No more.
An employer can now pay up to $5,250 per year for an employee’s student loans tax-free through 2025. In addition, the employer now benefits from a payroll tax exclusion on the amount of the contribution..
Prior to the implementation of this new tax relief, an annual employer contribution of $5,250 would have cost both the company and the employee about $400 in payroll taxes, according to the national law firm. Bradley. In addition, an employee with a federal income tax rate of 22% would pay $1,155 in federal income tax. So, in the end, the employee ends up with a net benefit of about $3,695. And the employer would have paid $5,650 for it. Today, every dollar a company spends on a qualified student loan repayment program goes toward the intended purpose: debt repayment.
“It got a lot of attention from employers,” says Scott Thompson, CEO of Tuition.io, an education assistance platform. “Over the past few years, as we’ve been talking to more and more employers, one of the hurdles has always been, ‘why is this a taxable benefit?'”
After the change in tax rules, Google launched its own student loan repayment program. Starting this month, the tech giant is matching up to $2,500 in student loan payments per employee per year.
Favorable tax rules remain in place until December 2025, although Congress could vote to expand the rules or make them permanent, which some experts think is likely.
As Poulin, with Goodly, points out, the 401(k) legislation was also a temporary arrangement initially.
“Then it was extended and eventually made permanent,” he says. “That’s what we plan for student loan repayment as well.”
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