Companies are increasingly looking for alternative benefits that attract and retain talented workers. The US Bureau of Labor predicts that by 2029, more than 38.5 million people ages 35 to 44 (millennials) will outnumber all other age groups in the labor force. HR professionals are now looking towards evolving or implementing alternative benefits such as Student Loan Repayment Plans to gain a dependable workforce. Student Loan Repayment Plans (SLRPs) have a tangible impact on recruitment, retention, and overall employee productivity.
The Student Loan Burden
Student loans are heavy burdens that often negatively impact an individual’s mental health. Loans can even negatively impact their overall performance in the workplace. We often look toward the future when considering what benefits to provide our employees, but it is also just as crucial to consider the past. These large loans were often taken on by young individuals that took on a burden in order to receive the degree. One that probably added to their qualifications that guided them to your company. Moreover, individuals are also prioritizing loans which also means postponing savings for retirement, weddings, the pursuit of higher education, and buying a home. This also detracts individuals from establishing themselves in the community–a major factor in employee retention. By implementing SLRPs, employers are finding that not only do the aforementioned effects significantly decreases, it also broadens their recruiting pool while also retaining top talent in their workforce.
Tax-Exempt Student Loan Repayment Plans
Although Student Loan Repayment Plans have been implemented by companies early on, it wasn’t until fairly recently that SLRPs were nontaxable. Different companies have implemented loan repayment programs in different ways. For example, PwC launched a program in 2016 that allots $1,200 annually to junior employees for six years. Aetna offers repayment benefits for those that obtained an undergraduate or graduate degree within three years of applying. Staples offers Student Loan Repayment Plans to high-performing sales associates.
Additionally, this past year, The Consolidated Appropriations Act of 2021 allows employer-provided student loan repayment as a tax-free benefit to employees for five additional years, extending CARES Act relief first made available in March 2020. This means that through December 31, 2025, employers can choose to make tax-exempt annual contributions of up to $5,250 per employee toward eligible education debt. The funds allocated for this student loan assistance do not count toward an employee’s gross taxable income.
Student Loan Repayment Benefits
Just like any benefits, it is important to consider how they will translate into an employee’s job performance and their overall satisfaction. A survey completed by American Student Assistance found that 86% of employees would commit to a company for five years if the employer helped pay back their student loans. Besides being part of an employer’s benefits package as a recruiting and retention tool, SLRPs could also help with diversity initiatives. Women and minorities have accrued a disproportionate amount of student loan debt and would benefit greatly from this effort.
Key Requirements to Know
To take advantage of this benefit, employers who already maintain an educational assistance program will need to amend their program, and employers who do not already maintain such a program will need to adopt one. Employers will need to consider a written plan, notice, eligibility, and more.
Written Plan
The program should have a written plan document. The employer should formally adopt the eligibility, benefits, and rules of operation.
Notice
Employers should provide notification of the availability and terms of the program to eligible employees. Often, the plan document is prepared to also serve as the notice that may be distributed to employees.
Eligibility
Except for certain owners, all employees may be eligible to participate in the program. Employers, however, may limit eligibility in a variety of ways. Any eligibility restrictions must not discriminate in favor of highly compensated employees. Companies can avoid discrimination issues by making all employees eligible or by excluding all highly compensated employees.
Benefits
The payments may be made directly to lenders or as reimbursements to employees. They are combined with any other payments under the program for purposes of applying the $5,250 maximum. For this purpose, a “qualified education loan” is a debt incurred by the employee. That is solely to pay qualified higher-education expenses incurred by the employee. It should be around the same time and during a time when the employee was an eligible student.
Substantiation
Employers should require that employees receiving benefits under the program substantiate their expenses.
No Cash instead of Benefits
Employers cannot offer employees benefits under the program instead of a cash payment. In other words, employees cannot “opt-in” or “opt-out” of benefits.
Claw-Back Provision
The program may require that an employee who receives benefits under the program and does not satisfy some subsequent condition (such as remaining employed for one year) may need to repay the benefits. Such a provision, however, is not always enforceable under state law. It can be difficult to enforce as a practical matter.
Discover More Alternative Benefits
Student Loan Repayment Plans are just a cursory introduction to alternative and evolving benefits that HR professionals are turning to. For example, the foundation of any student loan program is also financial counseling to better manage resources. These types of additional benefits, along with voluntary insurance, pharmacy benefit managers, corporate gardens, and self-funded health insurance are all items to consider. Learn more by downloading our newest white paper, “Alternative Employee Benefits Options HR Professionals are Considering” or tune into our new blog series. Contact us if you have any questions.