When it comes to up-and-coming employee benefit offerings, one that might be able to give financial wellness programs a run for its money is student loan repayment assistance.
This has been a hot-button topic in the past year, given the student debt crisis and the current pause on repaying student loans due to the coronavirus pandemic.
Americans hold about $1.7 trillion in student loan debt according to Federal Reserve data, and borrowers who graduated in 2019 from public or private nonprofit colleges and universities held on average $28,950 in debt, according to The Institute for College Access and Success.
It’s no mystery why employees saddled with such a high student loan debt burden are putting off saving for retirement, much less having the ability to build an emergency fund.
This is why employers have increasingly been turning to student loan repayment assistance as an employee benefit option, which can be particularly attractive as a way to attract and retain top job candidates who are have significant student loan balances. And the stars are lining up to make 2021 the biggest year yet for such programs.
Industry research shows these programs are gaining traction, with the Society for Human Resource Management (SHRM) forecasting that one-third of all U.S. employers could be offering some form of student loan repayment assistance program in 2021. In 2019, 8% of employers offered such a program, while just 4% offered one in 2018.
In these programs, employers typically contribute between $50 to $200 per month, with the median employer contribution being $100 per month toward the employee’s student debt. Greg Poulin, Co-founder and CEO of Goodly, a San Francisco-based tech company that partners with employers to offer student loan repayment as an employee benefit, says many clients fund student loan benefits by simply redirecting existing benefits budgets, often from tuition assistance programs.
“This is a fairly straightforward proposition when one considers that roughly half of employers already offer tuition assistance benefits that allow employees to go back to school,” Poulin said. “Yet, these programs often see abysmal utilization with less than 10% of eligible workers taking advantage of a tuition benefit on an annual basis.”
CARES Act provision extended
Student loan repayment programs got a big boost in 2020 thanks to a provision in the CARES Act, which allowed employers, for the first time, to assist employees with repayment of their student loans through the end of 2020 through direct, nontaxable payments to employees or their lenders. Functioning similar to how employers contribute to employee 401k accounts, under the CARES Act, employers could make nontaxable student loan reimbursement assistance payments up to a maximum of $5,250 per employee between March 27, 2020 and Dec. 31, 2020.
This key CARES Act student loan repayment assistance provision received a very significant five-year extension at the end of December in the form of the latest stimulus bill passed by Congress and signed into law by President Trump on Dec. 28.
Goodly’s Poulin called this “the most important legislative change to employee benefits in 40 years since Congress decided to alter the tax code with the Revenue Act that led to the proliferation of 401k.”
Biden wants to forgive $10,000
Notably, the latest stimulus bill did NOT extend the pause on federal student loan payments that is currently set to expire on Feb. 1. But in a press briefing last week, President-Elect Joe Biden announced that on “Day 1” he plans to extend the pause (although he did not indicate for how long).
But that wasn’t the only student loan debt-related move Biden plans to make upon being inaugurated on Jan. 20.
As part of a series of steps intended to “get the economy moving and keep Americans afloat,” it was announced that Biden would push Congress to pass legislation to immediately cancel $10,000 of federal student loan debt per person as a response to the COVID crisis.
Such a move could draw opposition on multiple fronts, with some arguing that erasing these debts would unfairly benefit those with a college education while others, such as Sens. Elizabeth Warren (D-MA) and Chuck Schumer (D-NY), are pushing for the Biden Administration to cancel up to $50,000 of student debt without Congress by issuing an executive order.
Goodly’s Poulin says that instead of canceling student loan debt, employers should help repay student loans as a benefit because it is the most logical solution to the student debt crisis when considering how we got here.
“If a degree is a prerequisite for employment and employees need help with their student loans,” Poulin said, “shouldn’t employers contribute to solving the student debt crisis?”
Poulin noted the Congressional Budget Office estimates that over $1 trillion dollars in new student loan debt will be added by 2028. That being the case, “employer-sponsored student loan repayment is the single most important new benefit employers can add in 2021, as well as the most viable, not to mention fair and equitable, alternative to student loan cancellation,” Poulin said.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
