To attract and retain younger workers, more companies are offering a different type of employee perk: student loan repayment assistance.
Employers typically provide employees a set monthly amount — usually around $100 a month — to help pay student loan bills. These payments are usually sent directly to the employee’s loan servicer.
Since PricewaterhouseCoopers made headlines in September 2015 with its announcement to offer this benefit to its full-time employees, hundreds of other companies and different types of businesses have followed suit, rolling out similar student loan repayment benefits for employees nationwide.
“Pricewater definitely set a benchmark there with [offering] $100 a month,” since many other companies adapted that as the standard rate for student loan repayment assistance, says Meera Oliva, chief marketing officer of Gradifi, a subsidiary of First Republic Bank that manages student loan repayment benefits for employers. Gradifi has more than 400 clients that offer student loan benefits, including PwC, Honeywell International Inc. and Penguin Random House.
Workforce experts say this type of benefit acts as a recruitment tool to attract young talent, especially since many recent college grads who are applying for entry-level jobs are saddled with student debt. According to U.S. News survey data, the average 2016 college grad who borrowed loans to pay for school graduated with nearly $29,000 in student debt.
In fact, most employees — 78 percent — say they would be more inclined to accept a job offer if it included student loan repayment benefits, according to a recent CommonBond report that surveyed more than 1,500 employees age 22 and older. The survey also found that 87 percent of employees ages 22 to 34 would be more willing to stay at their current job if it offered student loan repayment perks.
For recent college grads and millennials looking to land a job that offers student loan repayment assistance, here are few things to keep in mind.
[Read: New Bankruptcy Rules Proposed for Student Debtors.]
Expect more companies and different types of employers to add this benefit. Although student loan repayment benefits were initially popular among large companies, other types of employers, including nonprofits and municipalities, are offering this perk. The city of Memphis, Tennessee, for instance, is now offering its full-time employees help with student loan repayments.
Benefit enrollment specialists expect employers to adopt this perk more quickly than they did tax-advantaged 401(k) retirement accounts, which rolled out in the 1980s and have since become a standard workforce benefit for full-time employees.
“If it took us 30 years to get 401(k)s out there across all these companies and industries. There’s no chance that this is going to take a comparable period to implement student loan repayment assistance. It’s going to happen very quickly,” and probably within the next three to five years, says Scott Thompson, CEO of Tuition.io, which currently manages this benefit for more than 150 clients, including Hulu, Children’s Hospital and Medical Center in Omaha, Nebraska; Staples; HP Inc. and The Estee Lauder Companies Inc.
[Read: Why Repaying Student Loans on a Credit Card Is a Bad Idea.]
Thompson adds that student loan repayment assistance isn’t an industry-specific benefit. “If you look across our client base, you’d see all kinds of companies, from really small to really large in just about any industry that you can imagine,” including health care, technology and manufacturing, he says.
Among Gradifi’s clients, Oliva says those in the health care industry stand out as quick to adopt this benefit as they try to lure nurses and doctors — people who take on a lot of debt. But, she adds, other types of employers, such as private K-12 schools, offer employees this benefit as well. “The student loan debt problem is so pervasive that you see interest from companies from all sorts of industries,” Oliva says.
Loan repayment assistance cuts down the loan repayment period. Opting into an employer’s student loan repayment assistance plan can save a borrower thousands of dollars in student loan repayment.
Mike Fenlon, chief people officer at PwC, says his company’s Student Loan Paydown benefit pays $1,200 a year for up to six years. He says this can reduce participants’ loan principal and interest by as much as $10,000 and shorten their payoff period by up to three years.
Some companies might structure their plans to shave even more dollars off an employee’s student loan balance. Thompson says based on the average student loan repayment plan contribution levels among Tuition.io clients, the benefit can reduce a participating borrower’s loan principal and interest obligations by around $15,000 to $18,000 — if the plan is uncapped. He adds that some employers put a cap on the amount they will contribute to student loan payments at $5,000, $7,500 or $10,000. But, he says, around 60 percent of clients that use Tuition.io’s platform offer uncapped plans.
Eligibility is also determined by an employer. Usually an employee needs to work full time, although there are a couple of companies, like Aetna Inc., that offer this benefit to those who work part time.
Companies may set other rules for eligibility or structure this benefit differently for recruitment and retention purposes.
“We offer this benefit to staff early in their career,” say Fenlon of PwC, where employees are eligible for the benefit at the associate and senior associate level; the perk isn’t offered at the managerial level.
[Read: What Happens If You Misuse Your Student Loans.]
Know that student loan repayment benefits are taxable. Currently, dollars given to an employee under a student loan assistance plan are considered taxable income. But there’s momentum in Congress to amend the tax law for this type of employer contribution. Last year, Republican Rep. Davis Rodney of Illinois introduced the Employer Participation in Student Loan Assistance Act, which would amend the IRS tax code to exclude employer-provided educational assistance from taxes and essentially treat it the same as 401(k) contributions or employer tuition reimbursements.
“If it passes, the bipartisan bill will have a massive impact on this benefit, as employer contributions to student loans would become tax-deductible for employees, similar to 401(k) [retirement accounts]. But despite it being a taxable benefit at least for now, student loan repayment is enormously popular with employees — especially millennials and members of Gen Z,” says Jeff Oldham, senior vice president of global and institutional markets at Benefitfocus, a cloud-based benefits enrollment company.
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What to Know About Employer Plans That Pay Your Student Loans originally appeared on usnews.com
