The Mutual Benefit of Employer-Assisted Student Loan Repayment

For the first time in almost two years, the bill will come due for millions of Americans as the student loan repayment pause expires on January 31, 2022. This news may be far removed from many employers’ minds, but in fact, it’s an opportunity to gain a competitive edge in recruiting and retaining top talent.

As open enrollment season nears, have you considered offering student loan repayment to employees? Find out more about this popular benefit and how to take advantage of this mutually beneficial opportunity.

What are Student Loan Repayment Benefits?

Student loan assistance refers to any employee benefit wherein an employer offers financial, advisory, or other support to help workers repay student debt. Most often, assistance takes the form of actual repayment of the loan in part or, in some cases, in full.

According to a 2020 study, the average US household owes $58,309 in student debt, but the Society for Human Resource Management (SHRM) reports only 8% of employers offered student loan repayment assistance in 2020, the same rate as the year before. The SHRM report also notes, however, that the percentage of participating employers doubled from 2018 (4%) to 2019 (8%).

The student debt crisis can be an opportunity for employers to offer more personalized and meaningful benefits, attracting younger hires who may view traditional benefits like retirement as a distant abstraction. 

Has COVID Affected Student Loan Repayment Benefits?

The pandemic certainly played a role in slowing the progress of this emerging benefit, but that doesn’t mean it’s going away. 

In March 2020, student loan repayment was suspended by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This temporary administrative forbearance includes 0% interest and a pause of collections on defaulted loans. Recently, the Department of Education extended the student loan repayment pause for the final time—to January 31, 2022.

Under these circumstances, it’s understandable that struggling small and midsize businesses would have less incentive to offer student loan repayment as an employee benefit in 2020. But as the economy recovers in 2021, organizations have found themselves in a fierce competition for talent in which a robust benefits package can make the difference. 

Employers should also note that the CARES Act provides for tax-free contributions to employee student loan repayment up to $5,250 per year, an incentive extended by the Consolidated Appropriations Act through 2025.

This means that upcoming open enrollment for 2022 is an ideal time to consider offering student loan repayment as an employee benefit.

How Do Student Loan Repayment Benefits Work?

Employers can creatively structure these benefits in whatever way makes the most sense for their unique organization. To help guide you, here are three approaches to employee student loan repayment:

1. Matching Repayment Contributions:

In this approach, employers match a percentage of the employee’s own payments. Several third-party administrators have already developed innovative benefits solutions for matching. Contributions could also be sent directly to the employee’s loan servicer. This would, of course, incentivize the employee to pay more than their monthly minimum and get out of debt sooner.

For example, Aetna uses this approach, matching up to $2000 per year. The health insurance carrier does, however, cap their contribution at $10,000 per employee for life.

2. Offering a Choice Between Repayment and Retirement Contributions:

Considering the costs of offering both benefits options—especially when any individual employee would rarely use them at the same time—employers may want to give workers a choice: match a percentage of their student loan repayment, match the same percentage of their 401(k) contribution, or match both by splitting the percentage. 

This approach would not add any additional costs to employers’ traditional benefits package. Many employees are already making a similar decision with each paycheck whether or not their employers are helping.

3. Contributing Fixed or Tiered Amounts:

Fixed amount contribution tends to be the most popular approach to employee student loan repayment benefits. The employer may offer the same amount to everyone or use a tenure-based tiered repayment plan as an employee retention strategy.  Of the approaches we’ve covered, this is the least demanding administratively.

Companies as diverse as Penguin Random House, Estee Lauder, Staples, and PwC each pay a fixed amount of $100 per month toward workers’ student debt. Their contributions max out anywhere from 3 to 8 years.

Whatever your approach, offering any student loan repayment benefits at all can attract qualified candidates and show your current employees you’re ready to meet their needs.

What Else Can Employers Do to Recruit and Retain Talent?

Your benefits package should be a key component of your recruitment and retention strategies. If student loan repayment seems out of reach for your organization, you can still help employees by offering debt counseling or refinancing support. Most likely, your business is also benefiting from their education, and you’ll certainly be helping them bear this financial burden, leading to a healthier company culture.