Student Loans and Your Employees: Should You Get Involved?

As a provider of payroll and benefits administration services, we have seen companies come up with a lot of creative benefits programs. One of the most exciting benefits emerging within the last few years is student loan assistance. Companies are looking for ways to help employees pay off their debts and, in so doing, find themselves better able to compete for top talent.

Employee recruiting and retention notwithstanding, there is little doubt that student debt remains a big problem in the U.S. According to data cited by CNBC, the total outstanding student loan debt in America now stands at approximately $1.5 trillion. The average adult with student debt owes more than $30,000.

The question for businesses is whether they should get involved or not. Companies are already spending considerable amounts on health insurance, dental and vision, and 401(k) retirement plans. Some are also offering extra perks as well. Is it worth investing in yet another benefit?


Employees Say It Is

Companies can look at a student loan benefit as more of a benefit designed to meet a perceived social obligation to employees. They can also look at it simply from an HR standpoint. They can offer student loan repayment assistance for the sole purpose of better competing in a limited labor market.

If that is the case, it would be a wise idea for companies still on the fence to know what employees think about student loan benefits. Again, we turn to CNBC and data they published in an article that ran over the summer. They say that upwards of 90% of employees with outstanding student debt would rather work for a company that provides some sort of student loan repayment benefit.

Think about that for just a minute. If everything else were equal, a potential hire would rather go to work for a company offering a student debt benefit compared to one not offering it. That says it all. Younger employees still paying off their student loans are burdened both financially and mentally. They want to get those loans paid off as quickly as possible. As such, a company benefit designed to help them do just that is quite attractive.


Multiple Benefit Options

The company that decides to offer a student loan benefit has options. There isn't only one way to do it. For example, CNBC sites an example of one company in the healthcare sector that encourages payroll deductions for student loan repayment by offering larger contributions to 401(k) accounts.

Let's say a participating employee agrees to a minimum 2% payroll deduction that goes directly to pay off that individual's student loans. The company will contribute 5% to the employee's 401(k) plan. The contribution is made even if the employee is not contributing him or herself. Funds are fully vested after just a couple of years.

Another way to address student loans is to create a program that works similar to a retirement plan. Employees agree to contribute so much to repaying their debts – through payroll deductions – and employers complement those deductions with matching contributions.

The only downside to these sorts of arrangements is that money spent to reduce student debt is still taxable. Employers treat it as a taxable benefit reported on W-2s. There is pending federal legislation to change that, but the benefit remains taxable for now.

So, what are your thoughts? Does implementing a student loan repayment benefit intrigue you? If so, consider adding it to your current benefits package. Doing so could be the best thing you have done in a long while to compete for top talent.