09.19.2024 RISLA
You’ve attended college, completed an internship or two, updated your resume and now you are on a job search to enter the workforce or considering a growth opportunity to advance your career path. You’ve invested in yourself with a college education and as you embark on your career, it is important to consider how you will repay your student loans. According to an article from Nerdwallet, “The average U.S. household with student debt owes $55,347, according to NerdWallet’s 2023 household debt study."
Wouldn’t it be great if your employer could help with that? Well, some do, and some are considering doing so in the near future. Here’s what you should know about Employer Student Loan Repayment Assistance as you consider future employers.
What is Employer Student Loan Repayment Assistance?
Employer Student Loan Repayment Assistance is a tax-free, financial wellness employee benefit offering where employers assist in helping employees reduce financial stress in the form of employer contributions towards outstanding student loans.
How does it work?
Simply put, an employer makes a defined monetary contribution (typically ranging from $50 to $200 per monthly or larger lump sum quarterly/yearly payments) directly to the student loan of your choosing. In addition to your designated monthly payment, the employer's contribution helps in paying off the loan faster and reduces the amount of interest paid over the term of the loan. These contributions can make a big impact towards reducing your student debt in a shorter period of time allowing employees to focus on other important financial goals, such as purchasing a home, investments, and retirement savings. Example below:
Why haven’t you heard about this sooner?
This is a relatively new employee benefit offering but is growing in popularity both for employer’s willingness to offer to improve retention and recruitment as well as today’s employees wanting more assistance focused benefits in addition to competitive compensation. Until recently, this was not a tax-free benefit and the value of the contribution was diminished a bit by the fact that the employee would receive these contributions as taxable income. However, in March of 2020,as part of the Consolidated Appropriations Act of 2021 , employer’s student loan repayment contributions are now tax-free.
Federal stimulus legislation included a provision that extends an employer’s ability to provide a student loan repayment benefit to employees on a tax-free basis before January 1, 2026. Under this provision, an employer may contribute a combined total of $5,250 annually toward an employee’s student loans, and/or education expenses (e.g., tuition, fees, books). Such payment would be excluded from the employee’s income. The provision applies to any student loan payments made by an employer on behalf of an employee before January 1, 2026.
How is this different than tuition reimbursement assistance?
Tuition reimbursement assistance is a direct to employee payment to help you cover tuition expenses while actively participating in additional classes towards a degree, advanced degree, or certification program. Generally, upon completion of a class or certification you would submit your proof of completion with a passing grade and a reimbursement check would be issued to you the employee directly.
Employer Student Loan Repayment Assistance is a contribution directly to a student loan servicer when an employee is in student loan repayment status, generally after schooling has been completed.
Important to note: If your employer offers both benefits, tuition reimbursement and student loan repayment contributions, should you take advantage of both at the same time, both the contributions and reimbursement amounts will be combined towards your yearly tax-free limit of $5,250.
How can I get my current employer on board?
The power of suggestion, which is described as “how people take ideas given to them and turn those ideas into reality” is often the best way. If your organization and human resource department is open to suggestions on how to maintain a positive employee culture along with improving retention and recruitment, there are resources you can provide to show how this type of benefit can meet the evolving demands of today’s workforce as it relates to the high percentage of the current and incoming work force struggling with student debt and financial stress.
If you would like an information resource to start with, download RISLA’s factsheet on Employer Student Loan Repayment or visit risla.com/employer-repay and suggest your organization request a free demo to learn more.
Lastly, ask about this benefit when speaking to prospective employers.
Just as you would ask about the healthcare and retirement benefits, put this on your list of questions regarding benefits. Offering benefits such as employer student loan repayment and other health and financial wellness benefits can really tell a story about how much an organization values their employees which can make your work life balance easier to achieve.
When comparing job offers or just considering where to apply, consider the added value if you are currently in student loan repayment that this benefit can bring to you directly. The savings as noted above in the example are quantifiable and impactful. Your degree/education is valuable and your hard work deserves proper recognition. This type of assistance benefit can really help you get started on your financial goals sooner rather than later, maybe even more so than a few extra bucks in your paycheck.
