It has been a while since a new employee benefit has made such a splash in such a short time. More and more employers are looking at adding a student loan repayment program to their employee benefits. Two very large employers, Fidelity and Pricewaterhouse Coopers are launching these programs this year, and many other smaller employers are also looking to add these plans to their benefit program. According to the Society for Human Resource Management, 3% of employers offered these plans in 2015.
Why are employers considering these plans? There are a number of reasons, but the primary reason is to attract and maintain Millennials to a company’s workforce. Millennials are now the largest group in the workforce with more workers than Generation X or Baby Boomers. They also have a great deal of student debt. According to Mark Kantrowitz, a student financial-aid policy expert and publisher of Edvisors.com, the average student borrower who graduated in 2015 owed more than $35,000 in student loans. This is not just a problem for Millennials. Employees in their forties and fifties are still paying off student loans. This debt load is stressful not only for the student, but often for their Baby Boomer parents who are helping their adult kids pay off loans while forgoing retirement savings for themselves. Many studies have found that student debt is preventing younger employees from participating in 401k plans and reducing the 401K election amounts for their parents.
The beauty of the student loan repayment plans is that there is no set benefit program and employers can design the plan that best fits their employees’ needs and the finances of the firm. The employer can also set qualifications on the types of loans that are eligible under their program. For instance, some employers are only assisting with repayment of federal loans. Many plans pay off a set amount of the principal of the loan each month and continue the monthly repayment for a specific time period. Other plans make a lump sum payment of say $5,000 after the employee has been with the company a specific length of time and then make annual payments each year thereafter up to a pre-set maximum. Some employers will also cover loan repayments for an employee’s children and/or spouse.
There are now firms that will administer the loan repayment plans for the employer. The administrator will vet the loans to make sure they are student debt and confirm that the loan is for the employee and not another family member. They will then make the loan repayments to the borrower. Two such firms are Gradifi and Tuition.io.
Currently loan repayment plans are taxable as income to the employee, however, this may change. There are bills in congress that aim to make student loan repayments tax-free to the recipient up to certain limits.
Most importantly, those employers who have adopted these plans report that they have been able to attract a much larger number of qualified employees to their workforce, and have also greatly reduced turnover in their millennial staff.