Employers Student Loan Assistance, How to Get Employers to Pay for Student Loans
Student loan debt is a significant weight on individual graduates, while the aggregate total liability is an economic millstone on the broader U.S. society.
It may surprise some to learn that the total amount of outstanding student loans in America has surpassed both credit card debt and outstanding loan amounts for cars, SUVs, and trucks. In fact, educational debt is the second largest amount of consumer liability behind housing mortgages, according to data from the U.S. Chamber of Commerce (COC).
Over the past 30 years, the cost of college tuition has skyrocketed. CNBC recently reported that in the 1990s, tuition accounted for approximately 25% of the overall operating budgets for colleges and universities, however, today tuition makes up 50% of those budgets showing a staggering increase in college coffers with students shouldering the increased budgetary burden.
Introduction: The Economic Burden of the Average College Graduate
The current student loan crisis is causing financial stress and economic worry to millions of college graduates. The following collection of statistics from the COC are a stark reminder of the monetary maladies that grads are facing fresh out of school.
- There is more than $1.76 trillion of student debt owed in the United States.
- 60% of all students have incurred some amount of debt by graduation–either through direct government loans or private debt through financial institutions.
- More than 44.5 million people across all demographics have educational debt.
- 2 million of those people owe more than $100,000 and a half million have a loan for more than $200,000.
- The average total of student loan debt for a four-year student that graduated in 2016 was $37,102 – a 78% increase from just 10 years earlier.
- The average monthly payment on student loans was $393 in 2016, up from $227 in 2005.
Basically, students graduating today that owe $37,000 could have instead financed: a new Audi A4, a Tesla Model 3, made a 10% down payment on a $370,000 home, or had enough to finance the opening of a Chick-fil-A restaurant. Instead, that pile of debt payment is an invisible monetary mountain they will struggle to overcome for years, possibly decades.
The Solution Employers Can Offer Their Employees - Employer Paid Tuition and Student Loans
Successfully completing that “higher education vision quest” is a necessary process to ensure economic viability for individuals and society at large, especially considering the digital age in which we now are living. However, the cost of that brighter future is a heavy burden that’s largely borne by the average graduate.
Harvard Business Review notes that its writers are hearing more and more from university presidents about a troubling increase in mental health issues on campuses due in part to economic insecurity. The student debt crisis intersects with mental well-being, the digital skills gap, growing income inequality, as well as diversity disparities — and requires innovative solutions by policymakers, institutions of higher education, and employers.
Surprisingly, the role of prospective employers within the educational payment progression, and the associated funding conundrum, is often overlooked for some reason. Which doesn’t make a ton of sense, especially when you consider that when students invest in their education, their future employers benefit as much as the student.
However, when it comes to parsing up the educational expenses of college graduates – employers are oddly absent from the discussion. While a portion of college education is subsidized by taxpayers through government programs it’s the actual students that cover the balance, through the tuition they pay and the debt they bear. The timing seems right for companies to step up and help carry the costs of the intellectual innovation that education conveys to businesses in the form of new graduates.
How Employers Benefit from Payer Tuition and Student Loans
While there are many reasons why employers should embrace the idea of paying down the student debt of their new hires, here are five direct benefits to their respective organizations that were featured in a recent article published in the San Francisco Business Times, which provide a compelling rationale for any business owner to consider an employer student loan repayment perquisite.
Student loan debt hinders employee well-being and productivity It’s not much of a stretch to know that employees with large amounts of student debt may have to delay other major events such as getting married, having kids, or buying a home due to the economic challenges of servicing their student loans. The news article states that some graduates say the stress of the debt messes with their sleep and negatively affects their productivity. Employers now have the opportunity to do their part to help ease the burden of those who feel trapped in debt, and in the process increase productivity, retention, and recruitment for their business.
Minority groups carry a disproportionate amount of student debt The article reports that employees across most minority groups have higher amounts of student loan debt. For instance, women hold 66% of all outstanding student debt. The average Black borrower carries $25,000 more in student debt than white graduates. While Latino borrowers hold 31% more student debt than their white peers. Business owners who have a passion to promote diversity in the workplace can show it by offering a student-loan payment benefit.
Employer student loan payments for workers helps drive recruiting and retention Employers become more competitive when they offer this benefit, as the journal article cited that employer payment for their workers’ student loan debt was the single most popular benefit for Millennials and Generation Z employees. As more companies begin to offer it as a perk, other employers will need to follow suit if they want to attract the best talent pool and keep them on the payroll.
The results of offering a student debt payment benefit can be profound The news story correctly notes that the employer contribution is in addition to what the employee pays each month themselves to service the student loans, but the employer’s contribution goes directly to paying down the principal since the employees payments already capture the monthly interest due. That makes a significant difference in reducing the duration of the total loan and overall interest paid, saving thousands of dollars over the life of the loan. So for a minimal investment by employers, companies get a much happier and more productive worker.
Student loan benefits are pre-tax through 2025 Through 2025, employers can now make payments tax-free of up to $5,250 a year per employee. This benefit allows both employers and employees to sidestep federal payroll and income taxes on the student loan contributions, regardless if the loan is private, federal, or a refi. Not only is it a tax-free benefit, the employer can also write off the total annual contribution it makes on behalf of each employee as a business expense, which helps reduce their overall tax bill. Because of all these benefits, student debt paydowns are becoming increasingly attractive to employers who are focusing more and more on the financial well-being of their workers.
How to Convince Your Boss That You Deserve This Benefit
In fact, financial wellness of employees is becoming more of a priority among employers and business owners who are beginning to see their employees as the most valuable resource of any business. Offering an employer paid student loan benefit is a proven way to enhance the financial wellness of workers by reducing mental stress and worry that’s associated with carrying thousands of dollars in educational debt.
To that end, the fourth annual Employee Benefit Research Institute (EBRI) Financial well-being Employer Survey shows that financial well-being programs have become more comprehensive, with a top focus of reducing employees’ financial stress and increasing productivity. The survey results show that the primary benefits that employers offer their workers are based on addressing health, medical, and physical needs as well as basic finance and budgeting skills. Here are the top 10 reasons that surveyed employers gave for improving the financial well-being of their workers.
- Improved Overall Worker Satisfaction: 37%
- Increased Employee Productivity: 32%
- Reduced Employee Financial Stress: 28%
- Reduced Health Care Costs: 24%
- Improved Employee Retention (e.g. lower workforce turnover): 23%
- Improved Employee Use of Existing Benefits: 22%
- Improved Employee Recruitment: 20%
- Reduced Employee Absenteeism: 16%
- Differentiator From Our Competitors: 15%
- Prevention of early retirement: 12%
Based on these findings, it’s clear to see that business owners and employers see the tangible benefits of enhancing the financial well-being of employees - as exemplified by providing a student debt reduction benefit to their rank and file.
Conclusion: How Employee-Paid Benefits Can Help You Defer or Eliminate Your College Debt
As mentioned earlier, while this benefit has been extended, it’s still set to expire in December 2025. That means both you and your employer could potentially realize a cumulative benefit of $21,000 before the provision sunsets.
And since that employer amount is paying down principle, you greatly accelerate the retirement of your college debt. Additionally, since you’re also making your own monthly payments you’re supercharging the debt paydown rate without any additional tax bite. It’s worth noting that your employer can even make the payments directly to you instead of to your loan servicer, which could make more sense for you depending on the payment plan you're on.
For instance, direct payment of that benefit to you could be significant if you’re a civil service employee or government worker with hundreds of thousands of dollars worth of student debt. Because direct payment of the employer student debt payment to you, could enable you to better manage payments if you’re pursuing the Public Service Loan Forgiveness (PSLF) program as a public employee. The PSLF has many requirements to qualify, but if program participants make 120 monthly payments on time, the entire remaining balance of the loan is forgiven - regardless of how much it is
So participants in a PSLF could potentially use the direct monthly educational payment from their employer to make timely payments to the PSLF for the remainder of 2022 and the next three years. The employee could bank their own monthly student loan payment and earn interest on it, and then use that nest egg they’ve accumulated to continue making timely PSLF payments when the employer benefit expires in December 2025
And if congress votes to make the employer student debt repayment benefit permanent, the PSLF participants and all employees enrolled in a loan paydown program would be ahead of the game.
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