Should My Company Offer Student Loan Repayment Assistance?
Partner
Director of Retirement Plan Services, M3 Financial
Today’s employees are in the driver’s seat. With employers across every industry fighting to win the war for talent, potential candidates hold the bargaining power, seeking out creative benefits and perks to differentiate and decide between the companies who are courting them. One such perk is student loan repayment assistance.
What is Student Loan Repayment Assistance?
Student loan repayment assistance is a benefit that employers can provide to employees wherein the employer contributes financially to the employee’s outstanding student loans. This perk has gained popularity over the past few years, as student loan debt has grown into a near-crisis across the United States, totaling $1.75 trillion as of August 2022. At the time of this article, Educationdata.org reported that the average student loan debt per borrower at graduation is an estimated $36,900.
Why Student Loan Repayment Assistance?
Employees who have accumulated debt from achieving their undergraduate and even graduate degrees to break into an industry can see loan repayment assistance as a targeted way of advancing their career while achieving financial freedom.
The average graduate pays $500 per month in student loan repayments, and their average duration of repayment is 18.5 years according to Student Loan Hero. The same survey found that 54% of younger talent prefers student loan repayment over a 401(k) plan while 45% of all employees feel the same way.
There are benefits for employers when it comes to offering a student loan repayment assistance as well. The COVID-19 pandemic brought the importance of financial wellness into sharp relief, with employers seeing a clear correlation between employees’ financial security and their ability to perform well and enjoy their work.
Employers who assist their employees in paying back their student loans can lighten the financial load so many people are carrying. This kind of assistance can result in greater financial security for your employees, and, in turn, increase overall wellbeing and retention for your organization.
How Student Loan Repayment Assistance Works
Student loan repayment assistance programs work best when an employer contributes a small amount – typically monthly – to help pay down an employee’s student loan debt. As a result of the CARES Act, employer contributions are now governed by IRS Code Section 127, the same code that governs tuition reimbursement programs, giving tax-favored status to those contributions up to the federal annual limit.
Student loan repayment assistance programs are not a separate idea that you need to think about on top of your benefits and total compensation package. In fact, we’d recommend that you think about the benefits you offer to your employees holistically: health insurance, vision, worksite products, your 401(k) program, etc. – student loan repayment programs fit into this category.
When you take this perspective, you can see opportunities where student loan repayment could be an elective substitute for employees to direct their 401(k) matching dollars if student loans are a more suitable financial decision for the individual, or how this option could be brought in as an exciting additional benefit to augment your talent attraction and retention efforts.
Your M3 team always approaches your benefits strategy from this angle. What makes sense for your company’s culture? Your employees’ social determinants of health? Your budget and your benefits philosophy? Your strategy is not created in a silo – each aspect of your total compensation (from medical to financial benefits) are taken into account.
Should My Company Offer Student Loan Repayment Assistance?
If your company is seeking innovative retention tools, or if you’re recruiting talent with skills that go beyond a high school diploma, then a student loan repayment assistance program may be right for your organization.
Consider your employee demographic
At M3, we don’t believe that there is one best solution for every company’s benefits strategy – it really comes down to the demographics of your employees, their social determinants of health, and what desire these factors create for certain types of benefits.
For example, generationally speaking, there are differences between the kinds of financial benefits that an employee may look for. While mid-to-late career individuals may want 401(k) matching contributions, we’ve seen younger employees increasingly ask for assistance with student loan assistance for financial security.
Consider specialized areas of your workforce
Companies that want to ease into this emerging market may want a program designed to target a specific segment of their workforce. Having trouble recruiting in critical staffing areas? Experiencing high turnover within a certain class of employees? These situations are a perfect test market for a student loan repayment assistance program, with employer-defined eligibility parameters based on the class of employees your company is looking to recruit or retain (e.g.: “registered nurses after three months of active employment,” or “mechanical engineers after six months of active employment”).
Key Takeaways
Student loan repayment assistance is a sought after perk for employees during today’s war for talent. Employers who are interested in adding this benefit to their total compensation package should reach out to their M3 account executive to learn more about how this concept could fit into their benefit strategy and assist with talent attraction and retention.
