Student loan debt is a burden that crosses generations, with members of all five generations — from the Silent Generation to Gen Z — carrying student loans, according to the Education Data Initiative.
With companies struggle to find workers, student loan assistance programs would seem like a logical advantage in attracting job applicants. After all, Gen Z and millennial workers — a demographic often targeted by employers — own nearly 40% of outstanding debt, according to Education Data Initiative. However, only 8% of companies offer financial assistance for student loan repayment, according to a US News survey of 200 major companies in finance, technology and digital media.
“(Employers) don’t consider the unique competitive advantage they could offer with this,” says Tanja Hinterstoisser, assistant vice president of career design and employer outreach for Champlain College in Burlington, Vermont.
That could change, however, as new laws and technology make it easier for companies to help workers clear their student loan debt.
Why tuition assistance is more popular
While relatively few employers offer student loan assistance, 71% have tuition assistance programs, according to US News data. One of the reasons for the disparity between the two programs may be that until the passage of the Coronavirus Aid, Relief and Economic Security Act of 2020, only tuition reimbursement was eligible for funding. tax relief.
“Paying off student loan debt can be more like direct cash compensation,” says Jay Kirschbaum, senior vice president and chief benefits compliance officer at World Insurance Associates.
And before the CARES Act was passed, student loan assistance was essentially treated as cash compensation. There was no tax deduction for companies and the amount of the benefit was also taxable for workers. Now up to $5,250 in annual employer contributions for student loan repayment are tax-free for businesses and employees.
Tuition reimbursement programs have also been more popular with employers because they are seen as a way to improve workers’ skills and therefore benefit the company’s bottom line. However, employers who want to attract and retain young workers may find that student loan assistance programs also benefit businesses.
“Employees say if I had a student loan, I wouldn’t quit my job,” says Kristina Keck, vice president of pension services at Woodruff Sawyer, an insurance brokerage and consulting firm. She adds that companies that want to help workers with student expenses have several options for doing so.
Tax-free refund for student loan payments
Providing tax-exempt benefits as created by the CARES Act — and extended through 2025 by the Consolidated Appropriations Act of 2021 — is what Keck calls the “low hanging fruit.”
“It’s not hard to implement,” she says. “It is cheap.”
In addition, it has advantages for companies since they can deduct the contributions from their employment taxes. “It’s a win-win for everyone,” says Kirschbaum.
Companies can provide student loan assistance either as a lump sum contribution or by matching an employee’s payments, Hinterstoisser says.
Although each employer may have a different system in place, many operate on a reimbursement model. This means that workers make payments and then submit documents with a claim for reimbursement by the company.
Using the PTO to Pay Student Loans
Another approach to student loan assistance is for companies to allow workers to convert unused paid time off into student loan repayments.
“I think you’re going to see this start to grow to solve the student loan problem that we have in the United States,” says Rob Whalen, co-founder and CEO of PTO Exchange. His company helps employers set up programs that allow workers to convert unused time off into financial benefits such as student loan repayments.
Workers can redeem unused vacation days, up to a specified amount, and use the cash equivalent for other purposes, such as retirement savings or education savings. Whalen says companies using PTO Exchange can choose which options to offer their employees, and 60% allow the use of time off for tuition assistance and/or student loan assistance.
Like tax-exempt contributions, PTO conversions can operate on a reimbursement basis where employees are responsible for making the payments themselves. Whalen says his company is working to develop a direct payment system that would allow money to go directly from an employer to a student loan servicer.
Employers can also choose to set up their program to match employee payments. “We see them trying to create plans or programs that create good financial behavior,” Whalen says.
Reimbursement tools and resources
In addition to providing direct payment assistance, Keck says employers can sign up for technology platforms that simplify the reimbursement process for workers. “They can consolidate all student loans in one place,” she says, comparing it to a popular budgeting app. “It’s like Mint for your college loans.”
She cites FutureFuel.io as an example. Its platform allows employers to offer a variety of reimbursement tools to workers. These include refinancing loans, using spare change and cash back on purchases to pay off debt, and exploring loan forgiveness programs. Additionally, it can facilitate direct help such as student loan contributions or 401(k) matches for employee payments.
Platforms like Goodly, Tuition.io, and Vault have similar features that make it easy for employers to contribute to student loans or workers’ education savings accounts.
Regardless of how they provide benefits, Keck thinks student debt relief is something more employers should consider. Asked about the low number of companies offering these benefits, she replies, “I absolutely think it’s a missed opportunity.