Student loan benefits, where an employee is reimbursed by their employer for their student loans, have existed for a few years. However, nuances have slowed the progress of making it into more benefit packages. Any amount you contributed toward an employee's debt was considered income for the employee - meaning your employees would pay income tax and your organization would expend payroll taxes on the amount. For many businesses - maybe even yours - this has been enough of a deterrent to squash the entire idea. After all, if it's considered income, why not just pay larger salaries?
While this development certainly served as a boost for the budding benefit and perk, many employers still have balked at it out of fear that it would revert to its post-tax status. Luckily though, this allowance has been extended for at least five more years, an indication that it's likely here to stay.
Is Student Loan a Benefit I Should Consider for My Organization?
Perhaps you are one such employer. You've thought about it in the past but were hesitant due to the tax impact. Perhaps you're looking into it for the first time. Either way, it certainly would be great to offer this benefit if it fits into your budget. Given the new law, that may be easier than you think. Here are a few reasons you may want to offer your employees student loan reimbursement benefits.
Reason #1: You Already Offer Tuition Assistance
If you already offer your employees tuition assistance, then adding this benefit has become a no-brainer. You've already allotted these funds for your employees to use, and this gives them a new option to take advantage of. Unless it's your wish to do so, there is no need to budget any additional money for this benefit. Simply allow your employees to use the funds as they wish, either for tuition or loan reimbursement. The only additional cost would be the administration, which is minimal (in most cases, the cost is comparable to that of administering Health Savings Accounts).
Reason #2: You Recruit or Want to Recruit Entry-Level College Graduates
The best approach to attracting talent varies with the type of employee you are looking to bring in. While most adults surely pay close attention to things like your medical plan, disability benefits and retirement support, young workers are likely to start their careers still on their parents' medical insurance. This means that to get their attention, you may need to show them different benefits that are more in line with their needs. In other words, meet them where they are. Their student debt is fresh and real to them, and helping them reduce it could be a great way to put their minds at ease as they start in the workforce.
Not all your employees who hold student debt are fresh into their twenties. Plenty of people pursue MBAs, medical school, law school or even a second bachelor's degree. Even though their salaries may be a bit higher, these individuals may already have mortgages and families and may not be able to pay down their loans so quickly. They may not be advancing through their career as quickly as they'd hoped with their new degree and as such, find themselves exploring options. Helping your team with their debt can send a signal that you appreciate their commitment to growth and want to help ease their financial burden as they climb your ranks.
Reason #3: Participation in Your 401k is Lukewarm
Your employees may not feel comfortable saving for retirement if they have debt. If you offer a match for retirement savings, take a look at how many of your people are taking full advantage of the match. How many are not participating? How many are only participating partially? These are likely clues that there is debt out there, and people are not ready to start saving. In fact, rather than aligning loan reimbursement program with tuition, some employers coordinate it with their 401k program instead. By allowing employees to choose how much of their match goes toward the future and how much goes toward debt, organizations are covering the needs of a greater number of people.
Choosing an Administrator
You may wonder: will this create more work for me? Luckily, there are vendors who take on the administrative burden of these student loan reimbursements. First Person recommends partnering with a third-party. A strong partner will:
- Verify that the loans are truly for tuition. This is not intended to be a way to help people pay off credit card debt. The administrator verifies the loans before sending payments.
- Have a friendly user interface for both administrators and employees. Ideally, this is something you can set up quickly, check on periodically, and add or remove employees as needed. Employees will be the ones to ultimately connect this to their lender, so they need to feel comfortable using the service, too.
If you already offer tuition reimbursement and are happy with your current administrator, it's not necessary to move - though setting up student loan reimbursements separately is a common occurrence. However, if you want to use one firm to administer both of these benefits, you get the added benefit of making certain that no one goes over the allotted $5,250 per year.
But, be careful! Many of the student loan reimbursement administrators out there today are well-disguised arms of financial institutions. These are the same organizations loaning money to students in the first place, and as such, these programs are efforts for them to recover the money that they loaned. First Person has vetted the marketplace to find partners that we hold to the same high standards we have for all our partners and can help both facilitate and manage these relationships.
Creating a Strategy for Your Student Loan Benefit
I'm in. How do I decide on a solid strategy? There are a lot of ways that you can roll out a program. Let's take a look at the different scenarios:
Allocate money for the program
This is the simplest, easiest to explain and most common way to get started. Rather than trying to get creative with tax impact and allowing choices for your employees, simply allowing $50 or $100 per month for this benefit is a great way to get the program off the ground. Of course, it would create an added expense on top of your current benefits offered.
Set up an employee match
Just like you may already do with your retirement plan or Health Savings Account, offering to match contributions encourages savings and will likely reduce participation.
Combine the program with another
If your goal is to create options for employees and not create an additional expense, combine your student loan benefit with one that already exists. The most logical would be to combine it with tuition support. If an employee doesn't need the full amount allotted for tuition each year, this would allow them to use funds that have already been earmarked for something they need. Alternatively, you can combine this with 401k contributions, allowing each person to choose if your company's match will go toward retirement or student debt.
The core of your benefits and people strategies should be about meeting your employees where they are - and that includes their financial well-being. A student loan benefit may make sense to implement if it aligns with your workforce's needs and other existing programs like your 401k or tuition reimbursement program. Need additional help with your employee benefits? Contact us today