Student loan debt is a burden that crosses generational lines, with members of all five generations – from the Silent Generation to Gen Z – carrying student loans, according to the Education Data Initiative.
With businesses struggling to find workers, student loan assistance programs would seem like a logical benefit to attract job candidates. After all, Gen Z and millennial workers – a demographic often targeted by employers – hold nearly 40% of the outstanding debt, according to Education Data Initiative. However, only 8% of businesses offer financial assistance for student loan payments, according to a U.S. News survey of 200 large companies in the finance, technology and digital media industries.
“(Employers) are not taking into consideration the unique competitive advantage they could be offering with this as a benefit,” says Tanja Hinterstoisser, assistant vice president of career design and employer outreach for Champlain College in Burlington, Vermont.
That may be changing, though, as new laws and new technology are making it easier for businesses to help workers wipe out 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 U.S. News data. One reason 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 a tax break.
“Paying off student loan debt can feel more like direct cash compensation,” says Jay Kirschbaum, senior vice president and director of benefits compliance for World Insurance Associates.
And prior to the passage of the CARES Act, student loan assistance was essentially treated as cash compensation. There was no tax deduction for businesses, and the benefit amount was taxable for workers as well. Now, up to $5,250 in annual employer contributions toward student loan repayment is tax-exempt for both businesses and employees.
Tuition reimbursement programs have also been more popular with employers because they are seen as a way to improve worker skills and, in turn, benefit the business’s bottom line. However, employers who want to attract and retain young workers may find that student loan assistance programs also benefit businesses.
“Employees are saying if I had student loan assistance, I wouldn’t leave my job,” says Kristina Keck, vice president of retirement plan services for Woodruff Sawyer, an insurance brokerage and consulting firm. She adds that businesses that want to help workers with student expenses have several options to do so.
Tax-Free Reimbursement for Student Loan Payments
Offering 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 difficult to implement,” she says. “It’s not costly.”
Plus, it has benefits for businesses since they can deduct the contributions from their employment taxes. “That’s a win-win for everybody,” Kirschbaum says.
Companies can provide student loan assistance either as a flat contribution or they can match an employee’s payments, Hinterstoisser explains.
Although each employer may have a different system in place, many operate on a reimbursement model. That means workers make payments and then submit documentation with a request to be reimbursed by the company.
Use PTO to Pay Student Loans
Another approach to student loan assistance is for businesses to allow workers to convert unused paid time off into student loan payments.
“I think you’re going to see that start to grow to address the student loan problem we have in the United States,” says Rob Whalen, co-founder and CEO of PTO Exchange. His company helps employers implement programs that allow workers to convert unused time off into financial benefits such as student loan payments.
Workers can turn in unused vacation days, up to a specified amount, and use the cash equivalent for other purposes, such as retirement or education savings. Whalen says companies using PTO Exchange can choose which options to offer their employees, and 60% allow time off to be used for tuition assistance and/or student loan assistance.
Like tax-exempt contributions, PTO conversions may work 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 which would allow money to go directly from an employer to a student loan servicer.
Employers may 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.
Repayment Tools and Resources
In addition to providing direct payment assistance, Keck says employers can sign up for technology platforms that simplify the repayment process for workers. “They can aggregate all the student loans in one place,” she says, comparing them to a popular budgeting app. “It’s like Mint for your college loans.”
She points to FutureFuel.io as one example. Its platform lets employers offer a variety of repayment tools to workers. These include refinancing loans, using spare change and cash back from purchases to pay down debt and exploring loan forgiveness programs. In addition, it can facilitate direct assistance such as student loan contributions or 401(k) matches for employee payments.
Platforms such as Goodly, Tuition.io and Vault have similar features that make it easy for employers to contribute toward workers’ student loans or education savings accounts.
Regardless of how they provide benefits, Keck believes helping with student loan debt is something more employers should consider. When asked about the low number of companies offering these benefits, she says: “I absolutely think it’s a missed opportunity.”