Many of your workers have student loan debt. It may be causing significant stress. It may even be distracting them from work. To help with this growing problem, more employers are offering student loan assistance benefits. Here’s what you need to know before you launch your own program.
The Student Loan Crisis
The nation is drowning in student loan debt. According to the Federal Reserve, 53 percent of people with a bachelor’s degree or higher borrowed money to pay for their education. Among people with student loans, the average debt is $32,731.
While student loan debt is most often associated with young workers fresh out of college, many older workers also suffer from the financial burden of student loans. According to the AARP Public Policy Institute, between 1989 and 2016, the percentage of families headed by a person aged 50 or older with student loan debt increased from 3.1 to 9.6 percent. This debt is often the result of people returning to school as an adult, or of people taking out loans for their children or grandchildren.
The Impact on Businesses
Financial problems are a major cause of stress, and it’s a problem for both the employee and the employer. When workers are stressed about money, they may lose sleep, making them tired at work the next day or decide to take on a second job. It can have a negative impact on their overall well being, as well as their performance.
According to the Financial Health Network, one-third of employees say that personal finances have been a distraction at work, and workers with high financial stress are two times as likely to use sick time when they aren’t sick.
Financial wellness programs can address these problems, benefiting the employees and the employer. Student loan repayment programs have emerged as an important element of financial wellness. As employers compete for workers in a tight labor market, this is exactly the type of benefit that can provide a needed edge.
Offering Student Loan Repayment Benefits
Forbes called student loan repayment assistance the hottest employee benefit of 2018. The companies that are offering this benefit include Fidelity, Penguin Random House and Aetna.
Currently, student loan repayment benefits are not eligible for preferential treatment. Therefore, any amount paid to employees will be subject to income and payroll taxes. However, new legislation could make it even easier for companies to help their employees pay off student loan debt. The Employer Participation in Student Loan Assistance Act would make employer contributions tax free.
U.S. Representative Rodney Davis, who sponsors the act, says, “By simply broadening the use of an existing tax code provision, we can help graduates pay down their loans more quickly and prevent loan defaults that taxpayers are often on the hook for. H.R. 795 will not solve the student debt crisis alone, but it’s a good start.”
Additionally, under a new private letter ruling released publicly on Aug. 17, 2018, the Internal Revenue Service signaled its willingness to allow companies to make matching contributions to the retirement accounts of employees who do not make 401(k) contributions, as long as they are making qualifying student loan payments — for example, the employee would still get the employer's 401(k) match even if he/she were not making a 401(k) contribution, but a student loan payment instead.
Currently, only three percent of employers offer student loan aid, according to a study by the Society for Human Resources Management. However, interest in student loan repayment programs appears to be growing among employers, especially as more millennials enter the workforce. While the advantages are obvious for employees, the following are benefits that employers can reap by establishing such a program:
- Boost Recruitment and Retention — millennials are more likely to change jobs than their older co-workers. By providing them with student loan aid from the start, or after they reach a certain tenure, you can foster loyalty, reduce turnover-related expenses and set yourself apart from competitors.
- Improve Employee Well-being — financial stress affects more than 60 percent of millennials. Employees who struggle with their finances are more likely to be less focused at work, lead an unhealthy lifestyle and incur higher medical costs, since stress is a known contributor to high blood pressure and heart disease.
While the idea of student loan repayment programs remains relatively new, as more workers with student loan debt enter the workforce, demand for student loan repayment benefits will grow. If you employ a large number of young professionals, or if positions at your company tend to require advanced schooling, consider offering a student loan repayment program to set yourself apart from others in your industry.
Want to learn more about adding student loan assistance to your benefit program? Contact our Benefit Services team.