Crushing student loan debt is a growing problem for Americans – and America – held responsible for a whole generation's slowness in buying homes, having children, even getting married. If significant student debt is hanging over your head, it tends to dominate all thoughts of a financial future. Recognizing that situation, some employers have come to realize that retirement benefits are not front of mind for the Millennials, or even Gen X-ers, they hope to recruit and keep.
Before you get too excited, it’s not exactly widespread. According to the Society for Human Resource Management only about 3% of U.S. companies currently have student-loan-debt-repayment programs in place. The good news is that these programs are a growing workplace trend. (For more, see Student Loans: Loan Repayment and Student Loans Now Exceed $1 Trillion.)
The Size of the Problem
The size of the problem is what makes this new benefit so attractive. Currently, the accumulated student loan debt in the U.S. sits at more than $1.3 trillion. Moreover, that debt is growing at the rate of $2,726 every second of every day. For Millennials and Gen Xers, wages and inflation have not kept up with tuition costs.
If you have student loan debt of mortgage-like proportions, none of this is news to you. No matter how generous your employer’s 401(k) match and health benefits package sound, what you need the most (or at least as much as health insurance) is some help chipping away at that student-debt mountain.
How the Benefit Works
Recognition of the student-loan-debt problem, along with pressure from younger workers seeking relevant benefits from their employers, has led to some companies deciding to initiate one of several forms of student-loan-repayment programs. These vary by company but generally offer to pay up to a certain amount per year. Some will pay off the entire debt, but most have limits.
One company, Fidelity, says it will pay up to $2,000 per year toward student loan principal for an employee, with a total overall cap of $10,000. This is fairly typical for student-loan-debt-repayment programs.
Companies typically don’t administer student-loan-debt-repayment programs themselves. Fidelity uses a company called Tuition.io, which obtains funds from Fidelity and sends them to the various loan servicers on behalf of employees. Tuition.io also provides employees with counseling about which of their student loans to pay off first.
Other companies similar to Tuition.io include Gradifi and EdAssist. Gradifi says it is currently talking with about 100 employers who are considering adding this benefit, and both EdAssist and Tuition.io have said that demand for their services has been steadily rising.
How the Benefit Helps
For you as an employee, this benefit can have a significant impact on debt reduction. The New York Times outlined a hypothetical situation in which an employer agrees to pay $100 a month up to a maximum benefit of $10,000 on student loan debt. That’s $1,200 per year for 8.33 years.
If the employee’s total student loan debt is $35,000 at 6% interest for 10 years, the employer’s contribution cuts 2.5 years off the repayment period, making it 7.5 years. More important, the employer contributions save the employee more than $2,200 in interest.
Except for Taxes...
One issue that has affected corporate adoption of student-loan-debt-repayment programs and damaged the value of the benefit to employees is taxes. Currently, an employer’s student loan payments on behalf of a worker are taxed as regular income (to the employee). This means that a $100 per month contribution by the employer is not really $100. It’s $100 minus taxes owed, unless the employer contributes additional funds to cover the taxes.
Legislation has been introduced that would make the contributions tax free, at least up to a pre-specified limit. Other legislation, if passed, would allow employees and employers to make payments on a pretax basis similar to the way a 401(k) works.
Which Companies Have It?
For a broader view of programs currently in place, here are several companies that have student-loan-debt-repayment plans and the basic conditions for each.
PricewaterhouseCoopers – PwC’s program gives employees $100 a month (amounting to $1,200 each year). The offer is good for up to six years (or $10,000).
CommonBond and LendEDU – These two startups are unique in that they will agree to pay off your entire student loan balance at the rate of $100 (CommonBond) or $200 (LendEDU) a month. Unfortunately, Common Bond has fewer than 100 employees, and LendEDU has only half a dozen.
Natixis Global Asset Management – This company pays $5,000 toward outstanding student loan balances after five years and an additional $1,000 per year for the next five years.
Fidelity Investments – Fidelity provides employees with $2,000 per year for five years, beginning after the employee reaches his or her six-month anniversary.
NVidia – NVidia pays up to $6,000 per year, with a total cap of $30,000. The program kicks in after three months as a full- or part-time U.S. employee.
(For more, see Debt Forgiveness: How to Get Out of Paying Your Student Loans.)
The Bottom Line
If you have student loan debt and already have a job, ask the human resources office if your employer has a student-loan-debt-repayment plan or program. Although the chances are slim (given the small percentage of companies currently offering these plans), it doesn’t hurt to ask. If there is no plan, ask whether one is being considered. If not, suggest it.
If you are seeking employment and a student-loan-debt-repayment benefit is important to you, make sure you include that on your list of priorities. As more and more companies adopt this benefit, your chances of having it will expand significantly.
And if you happen to be in management, consider pushing for this benefit for new and current employees. It could be a valuable differentiator for your company in attracting and keeping the best staffers.