According to the Pew Research Center, as of June 2017, the total amount of U.S. student debt was $1.3 trillion; and 53 percent of all Americans under the age of 30 with a bachelor’s degree or higher had an outstanding student loan.
Why the Large Uptick in Student Debt Has Caught the Attention of Employers
Many employers are discovering that benefit programs such as 401(k) plans, with employer matching contributions, hold little attraction for recent grads, who are burdened by student loans.
As the unemployment rate continues to drop, and the competition among employers for professional workers has begun to heat up, a trend appears to be developing among accounting firms, financial investment firms, and other businesses that hire recent grads: they offer to provide “student loan repayment benefits.”
Putting the Programs into Place
According to a recent survey by a national benefits consulting firm, student loan repayment programs entail the employer making a monthly or other periodic payment to the holder of the student loan. In order to enhance the attractiveness of the program as a recruiting tool, many employers offer new hires the right to participate immediately upon starting employment. Also, employers appear to be opting for simplicity by using a flat dollar payment amount (say, $100 per month) for all employees, without taking into account other factors, such as loan size or the employee’s length of service with the employer, in setting the amount of the payment.
Employers who are considering implementing a student loan repayment program should be aware that there are practical issues that will need to be addressed, including:
- The payments are treated as taxable wages. This means that the payments will need to be integrated with the employer’s payroll and tax reporting systems. In addition, consideration must be given as to whether the benefit should be excluded from the definition of wages under 401(k) and other benefit plans.
- The employer’s loan payments need to be coordinated with the employee’s payments so that the loan amortization is properly accounted for by the holder of the employee’s student debt.
- The employer must decide whether employees who do not have student loans should get some other form of benefit—for example, payment of gym membership fees.
These new programs are becoming sufficiently widespread that vendors and consultants are beginning to offer services assisting employers with instituting and operating the programs and providing advice as to how best to communicate the attractiveness of the benefit to existing and potential new employees.
2 thoughts on “Competitive Hiring Tool—Paying Off Employees’ Student Loans—Gains Traction”
Is this a write-off for companies?
Good morning Cindy.
Because the employer’s payments are treated as taxable wages, the payments are deductible by the employer as a compensation expense.
Dan Morgan | Blank Rome LLP
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