The New Differentiator in Voluntary Benefits: Student Loan Debt Repayment

Nick Park

The New Differentiator in Voluntary Benefits: Student Loan Debt Repayment | Nick Park | Corporate Synergies
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There’s a new type of employee benefit that’s getting a lot of attention: student loan debt repayment assistance.

Millennials, who began to enter the workforce in 2007, endured one of the worst economic downturns in history. They faced years of unemployment or under-employment while struggling with excessive student loan debt repayment.

Struggling to make ends meet, many millennials moved back in with their parents. While unemployment in this demographic has eased recently, it has had a lasting effect. Millennials are bringing their financial uncertainties to work and they’re asking their employers for help.1  Employers are responding with student debt repayment assistance.

Student debt repayment assistance is a voluntary benefit, meaning it’s optional for employees and goes beyond traditional health insurance, vision, dental, disability and retirement plans. Student loan debt repayment assistance is linked to greater recruitment and retention efforts and overall career happiness. It’s a huge topic for millennials and one of the leading financial wellness opportunities for attracting and retaining top talent; 72% of employees say the ability to customize benefits increases loyalty to their employer.2

Yet only 4% of all employers offer any kind of student loan repayment assistance.3

How does it work?

There are several types of student loan debt repayment assistance benefit options. Generally, the employer agrees to pay a specific amount toward the employee’s student loan debt or reimburses the individual for up to a specified amount of what the employee pays toward the loan in a given year. The total amount is up to the employer, but many participating companies offer a minimum of $1,000-2,000 per year, and up to $7,000-10,000. Some employers also require that an employee work at the company for a certain amount of time before enrolling, and that the employee has graduated from college within a certain number of years.4

The employee enrolls in a plan that aligns with their financial situation. By reducing or possibly eliminating the individual’s monthly loan payment, the employer’s total compensation package is more competitive without having to increase wages.

Some student loan debt repayment vendors use a model where the employer matches the employee’s student loan payment by contributing funds pre-tax into the 401(k) on behalf of the employee. The goal is a creative reallocation that frees up an employee’s budget to pay their loan while leaving more of their paycheck funds available for other necessities.

Other models offer refinancing, which will turn a federal loan into a private loan. Refinancing can lower a monthly payment, and the borrower pays off the full loan amount, often at a new interest rate.

Another model is loan consolidation, where multiple loans are combined and the borrower gets a new rate based on your financial background and other debt.

Still another model aligns borrowers with federal programs that are difficult for the individual borrower to enroll in and stay in over the long term. All programs allow the employer to channel payroll deductions directly to the student loan financial institution.

In addition to contributions, refinancing, consolidation or payroll deductions, programs can include student loan monitoring and counseling to educate employees on their student loans and develop a plan for paying them off based on their specific financial situation.

What to watch for

These programs can have a high per-employee, per-month cost. And if your student loan benefit involves a matching 401(k) contribution, work with your benefits broker’s ERISA attorney to ensure the student loan assistance program is compliant.

While student loan repayment assistance benefits don’t yet provide a tax incentive to employers, it’s still a voluntary benefit worth considering. Student loan debt repayment assistance stands out to younger generations during the hiring process and can increase retention rates long-term. It’s worth looking into.

1 Advisor Perspectives, “Millennials and the Labor Force”
MetLife, “15th Annual U.S. Employee Benefits Trends Study”
US News and World Report, “Young Workers Turn to Employers for Student Loan Debt Solutions”
Forbes, “Student Loan Repayment: The Hottest Employee Benefit of 2017”


© 2018 Corporate Synergies Group, LLC. No part of this material may be republished or distributed without prior written consent.

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