More and more companies are looking to improve their employee benefit packages by adding a student loan assistance benefit. This new benefit is designed to better help employees manage their student loan repayment. According to the Federal Reserve, as of July 2019, Americans owe $1.59 trillion dollars in student debt. Of the 45 million people who have student loans, only about 18.6 million or 41% are in repayment. With these numbers, the majority of people who need help are not the borrowers who have the student loans but the people who are incurring it.
As more companies address their employee wellness, student loan assistance is a great new benefit. Financial Wellness Programs can improve an employee’s work balance, productivity and overall employee satisfaction. A well designed program can improve retention rates and attract the best talent at all levels.
Current Student Loan Assistance Programs
Companies have recognized that the average college graduate has approximately $38,000 in student loan debt. To attract and retain the best talent, companies know they need a strategy to make their company competitive. Many current student loan assistance benefits include an individual loan repayment analysis and a paydown contribution from the company. This contribution goes directly to the lender yet appears as income to the employee on their W2.
This approach follows traditional loan repayment strategies by helping employees pay down their student loans more quickly. Many of these programs were developed in the hope that the 2018 tax code would include a new tax benefit to address this growing problem. It did not, and as a result, Employer contributions are taxable. There are various bills that may change current law but they have not been passed at this time.
Due to the fees and company contributions, these plans can be expensive and only help a small group of a company’s population.
Student Loan Assistance Benefit Shortcomings
It is our belief that a student loan assistance benefit should address not just the repayment area but also the prevention of the debt. By adding a more holistic approach, companies could also help their employees who are considering going back to school to advance their careers or the parents of college bound students avoid excessive student loans. There are more people making ongoing student loan repayment decisions then there are people in repayment.
Another shortcoming with the current programs is the lack of information for the married couple in repayment. A married couple with student loans could have up to 126 repayment combinations. More student loan dollars are now repaid under the Income Driven Repayment Methods. As stated above, most current solutions only provide information on the individual employee. If an employee is married, and the couple does not file their taxes the right way or select the correct repayment option, the majority of the company’s contribution could go to taxes and not to the paydown of the loan for their household.
With more borrowers selecting the Income Driven Repayment Options, a change in repayment strategies needs to occur. Since the monthly student loan repayment will be based on a person’s or household’s Adjusted Gross Income, more customized information is needed. Traditional repayment strategies may not work. With the right information and this strategy change, employees may be able to participate in other benefit programs such as retirement plans which have a direct impact on their Adjusted Gross Income and long-term financial health.
As Student Loan Assistant Benefits become more popular, HR managers and executives will need to find ways to attract and retain talent. This new benefit will need to be cost effective and help more employees at all levels of the organization. By addressing both the borrowing and the repayment areas of this important financial decision, overall financial wellness will improve at the company.
At PayForED, we have developed this holistic approach with a suite of software solutions. We help students, parents and borrowers navigate all of their options. As our company mission states, PayForED is preventing and solving the student debt crisis.