Millennials and Gen Z’s new to the working world now face tuition expenses that increase at rates much faster than normal inflation has in the past 15 years. The average student loan debt is over $39,400 with undergraduate loan payment durations extending into the early 40s.
- The average monthly student loan payment (for borrower aged 20 to 30 years) is $351
- The median monthly student loan payment (for borrower aged 20 to 30 years) is $203
For employees early in their careers, this monthly payment has many living with parents, delaying the purchase of a home, or doesn’t allow for retirement savings. In addition to these younger employees, a growing number of mature workers have taken Parent Plus loans to help pay for their children’s education.
This is why some employers are looking beyond tuition reimbursement programs to student loan support programs. Employers can support debt burden employees in three ways:
- Provide information to employees about services and support available to negotiate or consolidate the debt;
- Offer debt counseling for student loans through a retained service provider;
- Provide employees with additional income toward their student loan payments through student loan support programs.
While there is pending legislation in congress to put student loan payment support on a tax preferred basis, providing employees with additional income toward their student loan payments is currently taxable as income. Employers see a value in supporting this need in their employee population. Therefore, some programs focus on:
- Retention: Providing employees support relatively early in employment (e.g. after 6 months of employment), with increasing monthly subsidies each year; balloon payment at 5 years
- New Talent Acquisition: Using student loan subsidies as signing bonus
- Improve Engagement: Tying subsidies to key performance indicators
Regardless of the focus, employers tend to use a similar thresholds to that of Tuition Reimbursement programs offering as much as $5,000, not usually more.
A private letter ruling (PLR 201833012, May 22, 2018) by the IRS last year is expected to increase interest in these programs. This PLR allows employers to provide employees with 401K matching contributions for recognized student loan payments. “If an employee enrolls in the program and makes a student loan repayment equal to 2% or more of his eligible compensation for a pay period, the employer will make a non-elective contribution to the plan equal to 5% of the employee’s compensation for that period.” Modifying 401K plans to allow for this provision will certainly support early retirement savings which is essential for financial stability.
One size doesn’t fit all with employee compensation and benefits. Employers who keep their finger on the changing pulse of employee financial needs are likely to attract and engage talented employees. Contact us today if you need help building your student loan repayment program.