Student Loan Repayment Programs

Increasingly, individuals comprising today’s workforce are straddled with significant levels of student loan debt. At the same time, these workers are often conflicted as to whether they should focus on paying off their debt or set aside funds to pay for retirement. As an employer, adding a student loan repayment program to your employee benefit portfolio not only helps them address this dilemma, but also represents a tremendous opportunity to help attract and retain key talent.

In today’s competitive job market, it’s not enough to simply offer the traditional benefit portfolios of the past. Showing prospective talent and valued current employees that you care about their financial future by providing student loan repayment assistance goes a long way to help you stand out among your industry peers. And by structuring the program as a part of your voluntary benefits package, you have the ability to customize the program according to your workplace demographics and budgetary capabilities.

A lesser known component of the Cares Act, signed into law in early 2020, provides a temporary tax-free benefit for employers looking to assist employees by implementing a student loan assistance program.

According to the provision, employers can make up to $5250 in student loan payments for an employee within a year either directly to the employee or to the student loan servicer.

The money allocated toward each employee is considered tax-free (so the employee does not have to pay income taxes on the amount received, up to $5250). The employer receives a payroll tax exclusion for the same amount.

Although the program was originally intended to come to a conclusion in 2020, the Consolidated Appropriations Act extended the benefit through December, 2025.

With these programs, the employer first decides how much, if any, they are willing to contribute into the program. Then, based on the vendor chosen, the program options include models focusing on refinancing, consolidation or payroll deductions:

• The employer can set a specific amount they agree to pay toward the student’s debt over the course of a year. This is an arbitrary amount set by each employer, typically $1000 or $2000 per year, although larger companies sometimes offer amounts as high as $10,000. An employer can also set certain eligibility criteria, such as being actively at work for the firm for a required minimum time period or having graduated within a certain number of years.
• The employer can choose to match the student loan payment amount by contributing funds into a 401(k) on behalf of the employee. This relieves the employee with the burden of making the choice to either repay student loan debt or save for retirement.
• Refinancing the debt, which can lower the interest rate and corresponding monthly payment, converting it from a federal loan to a private one.
• Consolidating loans…whereby multiple loans are combined into one with a recalculated interest rate and monthly payment.

Offering a student loan repayment program not only helps students pay down their loan debt quicker and provides them valuable cost savings, but employers benefit since it also helps to reduce the stress and anxiety levels of these employees, boosting their workplace productivity.

The Queens Chamber of Commerce offers its members access to My Benefit Advisor as a solution for employee benefits, including voluntary offerings. For more information about My Benefit Advisor, visit our website at qcc.mybenefitadvisor.com or contact Glynis Roberts at (212) 706-9451.