If HR managers had a magic lantern, they would probably wish for a benefits package that all employees would be happy with. Unfortunately, such a package doesn’t exist. Instead, they are tasked with creating a benefits package that caters to employees at different ends of the life stage spectrum. Older employees are working past 65, often because they are worried about having enough money saved for retirement. The younger work population is worried about the enormous student loan debt that they have accumulated.
The national student loan debt in the United States is over $1.34 trillion, second only to mortgage debt. This problem is not only limited to recent college graduates. Employees over age 40 have more than $450 billion in unpaid student loans. Indeed conducted a survey on recent college graduates with student loans and found that 50% would rather receive a job offer with loan repayment than a health plan. That same survey also found that just under half of the graduates would rather have student loan assistance over a 401k.
It is no wonder that student loan repayment was quoted as the hottest benefit for 2017 by Forbes. Below are a few companies that currently offer student loan repayment and how the benefit is structured:
- Fidelity: $2,000 per year, up to a lifetime maximum of $10,000
- PricewaterhouseCoopers : $1,200 per year, up to a lifetime maximum of $7,200
- Nvidia: $6,000 per year, up to a lifetime maximum of $30,000
Companies like Gradifi and Student Loan Genius help organizations by providing platforms that allow employers to send payments directly to an employee’s student loan servicer.
Although this benefit has been getting a lot of attention, it is currently offered by around 5% of employers. One of the major hurdles preventing this from becoming a mainstream benefit is that, unlike tuition reimbursement, student loan repayment contributions are taxable. Employees will be taxed on the employer contribution as additional income. There is legislation under consideration in Washington that would correct this issue. In February 2017, a bill was introduced to amend Section 127 of the Internal Revenue Code. Section 127 currently allows an employee to exclude up to $5,250 per year in employer provided educational assistance from taxable income. That covers tuition, books, fees and supplies. Amending Section 127 to include student loan repayment contributions would mean the same $5,250 annual limit would apply. One thing to note is that the $5,250 limit is not indexed for inflation and has been in place since 1986.
Some companies have decided they won’t wait on Washington to fix the tax issue and are using their student loan repayment program as a recruiting tool to attract and retain Millennial talent while differentiating themselves from the competition. Because such a small number of employers are offering the benefit, it garners a lot of media attention and, as seen above, does not necessarily have to cost a lot of money. Companies have also found that matching an employee’s student loan contributions up to a certain percentage improves employee engagement.
One consequence of the student loan debt issue is that younger employees are not saving for retirement. This is important because they are putting their future at risk. The earlier employees can begin saving for retirement and letting compound interest go to work, the better their chances of achieving their retirement goals.
Let’s hope that the growth of the student loan repayment benefit will also lead to an increase in 401k savings. At least that’s my wish.