Some firms are now offering to assist in paying off one of the most significant debts many young people owe: their student loans. The pandemic and tight labor market have only accelerated this trend. Before the pandemic, employers were becoming more interested in student loan repayment plans. More employers are now considering student loan forgiveness as a recruitment tool, similar to health insurance, transit passes, and gym memberships.
Every year, three million people join the labor force with an average of $40,000 in student loan debt. According to data from the Federal Reserve, 47 million Americans owe more than $1.7 trillion in student loans, which is expected to rise dramatically over the next several years as the United States adds another $1 trillion in additional student loan debt.
Many businesses are rethinking their benefits packages to meet the changing demands and shifting demographics of today's workforce, owing to growing student loan debt and its often overwhelming influence on workers. That means adding a student loan assistance benefit is becoming increasingly common.
In December, employers got a significant incentive to provide a student loan pay-down benefit after the passage of the Tax Cuts and Jobs Act. Employer-provided tax-free payments up to $5,250 per year to employees' student debt under the Consolidated Appropriations Act of 2021 are not taxed as income.
The Earned Income Tax Credit is a federal income tax relief program that provides a significant financial benefit to low and modest-income workers. It's easier than ever for businesses to repay their employees' educational debts under this incentive. For workers, the assistance can't come soon enough. The average employee spends $5,000 each year repaying their student loans.
Workers Are Seeing Student Loan Repayment Benefits From Employers
While most employees would want a raise more than anything else right now, it's difficult to undervalue the advantage of receiving up to $5,250 in student loan payments without any tax ramifications. This may be particularly significant for individuals pursuing programs like Public Service Loan Forgiveness (PSLF).
Student loan repayment assistance is a game-changing benefit that helps job applicants and current employees. Because recent graduates' most pressing financial worry is their growing student debt, they regard student loan repayment to be an important and fair perk.
Large Companies Are Better Equipped to Offer Student Debt Assistance
As employers struggle to attract and retain talent, these perks are becoming more essential. Aetna, Freddie Mac, Live Nation, Staples, Estee Lauder, and Google are just a few of the household name businesses that provide student loan assistance in one way or another.
In fact, the Ebell & Melville Survey found that 31 percent of large businesses anticipate providing student loan aid within the next two years. They may consider Fidelity Investments' experience, which began a similar program in 2016.
After hearing the adverse influence loans were having on people's futures, Fidelity began offering to assist in paying employees’ student debt. According to an employee poll, 39 percent of Fidelity employees put off saving for retirement, and 30 percent were delaying starting families due to student loan stress. Employee incentives at Fidelity helped some workers choose to work there.
Since then, almost 15,000 Fidelity employees have participated in the benefit. In October, the company said it would expand the amount people could borrow to repay their student loans from $10,000 to $15,000.
Employers that assist with employees' student debt may have a better chance of recruiting and retaining talent. According to a Fidelity analysis of firms offering student debt repayment options, turnover dropped by 78 percent over one year. Employees at Fidelity who work at least 20 hours per week are eligible for the benefit from their start date.
Vertex Pharmaceuticals is providing $20,000 to new hires each year in the form of a scholarship. Vertex began its student loan repayment program in 2019 to alleviate the emotional toll student debt might have on employees' financial stability and retirement plans.
Dedicated student loan repayment plans are available from other New England companies, such as Blue Cross Blue Shield of Massachusetts, Amica Insurance, and Natixis Investment Managers. The federal government has long utilized the benefit to attract potential employees in fields requiring advanced degrees but offering relatively low pay.
Take the Veterans Administration Boston Healthcare System, which utilizes student loan repayment as a recruiting and retention tool. Employees there (and at many other federal jobs) may get up to $60,000 in student debt assistance. However, not everyone is eligible.
Borrowers who are most likely to struggle to pay back student loans are also less likely to receive this perk from their employers, as they are more likely to be unemployed or have incomplete degrees. Not all workers have access to these options, which is one of the difficulties with student loan repayment. Foodservice employees are an example of high-demand entry-level jobs where it does not apply.
Completely addressing the much broader problem of student debt in the United States will require federal action, such as boosting the Pell grant and reforming the student loan default system to assist low-income students in covering college expenses.
It's worth noting that employer-sponsored student loan repayment assistance plans have been around for some time. The extension of the tax benefit through the Consolidated Appropriations Act (CAA) makes it more affordable for businesses to offer assistance.
So far, most student loan assistance has been provided by large employers. The facilitation businesses receive a monthly fee per participating employee to make assisting bigger employers more lucrative for them.