Lori Meadows
With the ever-increasing cost of education, it is no surprise that student debt is a growing concern for many. As such, employers are increasingly offering student loan repayment assistance as an employee benefit. This assistance can come in the form of direct payments to lenders, contributions to retirement savings, or reimbursement schemes. Under federal law, employers who have educational assistance programs can use them to help pay student loan obligations for their employees, and this benefit can be offered tax-free up to a certain limit. This not only helps employees pay off their loans faster but also works to attract and retain talent for employers.
| Characteristics | Values |
|---|---|
| Federal Law | Employers who have educational assistance programs can use them to help pay student loan obligations for their employees |
| Tax-free benefits | Up to $5,250 per employee per year |
| Student loan repayment assistance | Recurring payments directly to lenders or contributions toward retirement savings |
| Lump-sum payment | $6,000 |
| Annual cash grant | $1,000 |
| Monthly stipend | $100 |
| Annual maximum | $15,000 |
| Annual matching student loan repayment benefit | $2,500 |
| Monthly contribution | $170 |
| Lifetime maximum | $10,200 |
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What You'll Learn
Student loan repayment assistance programs
There are different ways in which employers can structure their student loan repayment assistance programs. Some companies offer recurring payments directly to lenders, while others make contributions toward retirement savings. Some companies offer a lump-sum payment as a signing bonus, and others provide a monthly stipend. For example, Clayco, a construction engineering company, offers its employees $100 per month toward their student loans for the first year, with an increase of $50 each subsequent year up to a maximum of $250 per month in the fourth year.
Some companies offer student loan repayment assistance as part of their financial wellness benefits. For instance, a financial consulting company offers its employees a $100 monthly stipend for five years, after which they receive a $6,000 lump-sum payment. Chegg, an educational services company, offers its employees up to $5,000 annually through its Equity for Education program, with directors and vice presidents eligible for up to $3,000 annually.
If you are concerned about your student loan debt, it is worth looking for employers who offer student loan repayment assistance programs and understanding how these programs work to maximize the benefit.
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Tax-free benefits up to $5,250 per employee per year
The rising cost of education has led to an increase in student debt, with 59% of college graduates from the class of 2023 taking on student loans, and the average loan balance being $29,374. To attract and retain employees, some employers are offering student loan repayment assistance as a benefit.
Under federal law, employers who have educational assistance programs can use them to help pay student loan obligations for their employees. This benefit is available for payments made after March 27, 2020, and will continue until December 31, 2025. Educational assistance programs can be used to pay for books, equipment, fees, tuition, and other education expenses. They can also be used to pay the principal and interest on an employee's qualified education loans. Payments can be made directly to the lender or to the employee, and tax-free benefits are limited to $5,250 per employee per year.
Some companies that offer student loan repayment assistance include Chegg, an educational services company, which offers up to $5,000 annually for employees with at least two years of tenure, and Clayco, a construction engineering company, which offers $100 per month towards an employee's student loans for the first year, increasing by $50 each subsequent year. Financial services company Fidelity offers a lifetime maximum of $15,000 in student loan repayment assistance, while Google offers a $2,500 per year matching benefit for full-time employees.
If you are concerned about your student loan debt, it is worth looking for employers who offer this benefit and understanding how the program works to maximize the advantage.
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Signing bonuses and lump-sum payments
Lump-sum payments refer to single, complete payouts rather than periodic installments. They can be used to pay off student loans in full, stopping interest charges and simplifying budgets. Receiving a lump sum, such as a signing bonus, can be an opportunity to negotiate and pay off a significant portion of student debt. This strategy can save thousands of dollars in interest charges over the life of the loan.
According to a 2016 WorldatWork survey, 76% of employers have a sign-on bonus program. Candidates with specific degrees or training, such as engineering, business, or computer science, are more likely to be offered signing bonuses. Using a signing bonus to make a lump-sum payment towards student debt can be an effective way to reduce the total balance owed.
Some companies offer lump-sum payments as signing bonuses when an employee first starts. For example, the financial consulting company Gradifi offers a $6,000 lump-sum payment to employees after five years of service. Additionally, employers with educational assistance programs can use them to help pay off their employees' student loans. These programs can be used to pay principal and interest on qualified education loans, with tax-free benefits limited to $5,250 per employee per year.
Overall, signing bonuses and lump-sum payments can provide a significant boost in paying off student debt, reducing interest charges and accelerating the path towards financial freedom.
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Direct payments to lenders
Employers can help their employees pay off student loans through direct payments to lenders. This can be done through educational assistance programs, which have been traditionally used to pay for books, equipment, supplies, fees, tuition, and other education expenses for the employee. Under federal law, employers can use these programs to pay student loan obligations for their employees. Payments made directly to the lender, as well as those made to the employee, qualify.
The IRS has reminded employers that educational assistance programs can be used to help employees pay down student loans through December 31, 2025. This option has been available for payments made after March 27, 2020. By law, tax-free benefits under an educational assistance program are limited to $5,250 per employee per year. Normally, assistance provided above this level is taxable as wages.
Some companies have implemented programs to help pay off student loan debt through recurring payments directly to lenders. For example, Clayco, a construction engineering company, offers student loan repayment assistance to employees who make at least the minimum payment each month. Employees can choose to receive $100 per month toward their student loans for the first year, with the payment increasing by $50 each subsequent year up to a maximum of $250 per month in the fourth year.
Gradifi is another platform that employers can use to make direct payments to lenders on behalf of their employees. Additionally, Fidelity offers a student loan debt repayment program where employees can receive up to a $2,500 per year matching student loan repayment benefit.
Employers who offer student loan repayment assistance can do so tax-free up to the $5,250 limit, and offering these benefits may help recruit, engage, and retain employees.
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Retirement savings contributions
Here's how it works: if an employer offers a retirement plan with a matching contribution feature, employees can now count their monthly student loan payments as their contribution towards the employer's retirement matching program. This means that instead of contributing a portion of their paycheck to their retirement plan to receive the employer's match, employees can make qualifying student loan payments and still earn the same matching benefit. This benefit is often referred to as "free money" and can significantly enhance an employee's retirement savings over time.
It's important to note that not all employers offer this benefit, and it may take time for more companies to adopt it. Additionally, employees should be aware of vesting requirements associated with employer-matching contributions. If an employee leaves the company before their money is fully vested, they may lose some or all of the non-vested funds, including the employer-matching contributions.
While student loan debt can be a burden, it doesn't have to hinder retirement savings. By taking advantage of employer-matching programs, employees can work towards paying off their student loans while simultaneously building their retirement nest egg. This dual approach ensures that employees don't have to choose between repaying their student loans and saving for the future.
Furthermore, employees can also explore other retirement savings options, such as contributing to a traditional or Roth IRA, which offer tax advantages. Additionally, income-driven repayment plans, employer-sponsored student loan repayment programs, and loan forgiveness options may provide additional avenues for managing student debt. Striking a balance between loan repayment and retirement savings is crucial, and employees should consider seeking professional financial advice to determine the best strategies for their specific situation.
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Frequently asked questions
Employers can help their employees pay off student debt through educational assistance programs. These programs can be used to pay for books, equipment, fees, tuition, and other education expenses.
By law, tax-free benefits under an educational assistance program are limited to $5,250 per employee per year.
Some companies that offer student loan repayment assistance include Chegg, Clayco, Fidelity, and New York Life.
You can check with your company's human resources department to see if student loan repayment assistance is offered as an employee benefit.
You may be able to access student loan repayment assistance programs through a federal or state government agency based on your career choice. For example, health professionals, public defenders, military members, and STEM workers may be eligible for government assistance.
