Repayment programs: a competitive advantage?
As the war for talent continues to heat up, companies are getting increasingly creative in the perks they offer employees. A free gym and snacks are a couple of good ones, but with student loan debts skyrocketing, a welcome perk for college graduates is a student loan repayment program.
The student loan epidemic
Currently more than 44 million Americans owe more than $1.56 trillion in student loan debt, up from $1.52 trillion just last year. It’s the second highest debt category—behind mortgages—and default rates have been on the rise. According to the Institute for College Access and Success, the average class of 2017 grad owes a little over $28,500. More than 2.5 million workers are saddled with loan amounts of more than $100,000. It’s not too surprising to understand the enormous appeal a student loan repayment program would have to job candidates.
One benefit–5 years of employment.
Companies that offer student loan debt relief can more easily attract and retain talent. In fact, studies indicate that 86% of workers between the ages of 22 and 33 would commit to an employer for five years if the employer offered a student loan repayment program. Another aspect of the employee experience to consider when thinking about implementing a loan repayment program is engagement. The very real fear and anxiety suffered by workers who are stressed out about defaulting on their student loan payments can take a toll on their performance.
5 tips to help employees repay their student loans
Creating a program to help recruit the brightest and the best to your company can easily be achieved. The quickest way to set one up is to take a look into financial organizations that already have a program management platform in place. These programs enable your company to make after-tax contributions towards your employees’ loans.
If you want to DIY it, a few points to consider include:
- Determine the monthly payments you want to contribute. Most organizations start off at $50-100. While this is a seemingly small amount, the contribution can help employees save thousands of dollars in interest.
- Set a cap on the maximum amount you’ll contribute.
- Figure out who will be eligible to receive the benefit. Keep in mind that the nondiscrimination rules that apply to other benefits programs—such as 401(k) plans and health insurance—do not apply to student loan repayment programs.
- Decide if you want to tie a specific work commitment from the employee in exchange for loan repayment assistance.
- Remember, the payments made toward a student loan are considered wages, so they’re still subject to federal income and payroll tax withholding.
401(k)s and student loan repayments: Recent updates
Last year, the IRS approved a novel method Abbot Laboratories developed to help its employees pay off their student loan debt. They make a matching contribution that equals 5% of the employee’s compensation if:
- the employee makes a contribution to their 401(k) that equals at least 2% of their compensation, or
- the employee makes a student loan payment that equals at least 2% of their compensation (even if the employee doesn’t contribute to their 401(k).
The program is an attractive benefit, especially for those employees who think they can’t save for retirement due to hefty loan payments. This program helps the them pay off their loans without sacrificing the contribution from an employer match. And because the company’s contributions are payroll tax free and not subject to federal income tax withholding, the program offers significant tax advantages.
Paycor Can Help
Need help recruiting & retaining talent? Interested in creating a competitive benefits program? Paycor can help! Talk to a consultant today and learn why 30,000 organizations trust Paycor as their HR and payroll provider.