Should You Offer Student Loan Repayment Assistance as an Employee Perk?

By Aidan Cannon on November 28, 2023

Every year, the job market seems to get more and more competitive. Young people exit college with loads of drive and ambition, ready to make an impact in their field of choice. This can often lead to high volumes of potential candidates applying to positions, resulting in a lot of potential work for a hiring team. While this may sound like a headache, as an employer, you may be able to use this to your advantage. By offering certain hiring incentives, you can cull the wheat from the chaff, and land your top candidates for any position. This begs the question, what do I offer to incentivize potential workers to work for me? A perk that has become increasingly attractive in recent times is helping repay employee student loans, which will not only help your employees recover from serious debt but also create bonds of loyalty between themselves and your company. This guide will break down how student loan repayment assistance works, and how using it can help your company.

Image from Pixabay.

What is student loan repayment assistance?

As the cost of college becomes more and more expensive, many students are forced to take out loans to help them pay for their university experience. These loans are given out with the expectation that once students have graduated from college and landed a job they can use to support themselves, they will be able to pay these loans back. However, due to an extremely competitive job market and interest rates, young people can be saddled with this student loan debt for years, even decades, before it’s fully paid off. That’s where companies can help with student loan repayment programs.

According to the United States Chamber of Commerce, there are two primary forms of loan repayment assistance, those being direct repayment and discretionary. Direct repayment is exactly what it sounds like, with the employer setting money aside to help pay for their employees’ student loans, either by creating an automatic recurring payment or matching an amount put forward by the employee. Discretionary is a bit more complicated. It involves using the money that would have gone into an employee’s benefit programs and instead channeling it into student loan repayment (i.e. sacrificing certain forms of insurance they already have coverage for to help pay off debt). In theory, this can give individual employees more control over their situation and expedite the process of paying off their student loans but can leave them susceptible to losing out on significant benefits.

Is student loan repayment a good financial idea for my company?

When making a decision as an employer, you need to consider more than just “Is this a good idea for my employees”; you need to figure out if it makes financial sense. Luckily, student loan repayment carries with it some financial perks that help companies bring programs like these to their workforce. In 2020, the Consolidated Appropriations Act passed, allowing employers to help repay their worker’s student loans tax-free. Previously companies could still help repay student loans, but their contributions would be taxed. Now, companies can contribute up to $5,250 towards an individual employee’s loan repayments every year, completely void of taxes. This federal ruling incentivizes private businesses to help with the student debt crisis while preventing it from negatively impacting their bottom line. Should you wish to give more money to your employees, you can, but that money will be taxed.

How should I implement student loan repayment plans?

If you have decided student loan repayment is something you want your company to offer, you’re then confronted with another big question: how will your repayment program work? The first thing you should consider is what employees you are going to cover with the program. For example, will you cover employees who are currently in a degree program? While helping workers who are pursuing further education is very generous, your focus for the time being should be those who have finished their degrees, as they are the most likely to be struggling with their collected debt.

You should also decide how much money you’re able to allocate to each employee per month. According to the Education Data Initiative, the average student loan payment per month is $503. Multiplied by 12, that comes out to $6,036 per year, which is beyond the $5,250 a business can contribute towards an employee’s loan repayment during that timespan. However, you don’t need to offer the full amount of assistance immediately when you hire someone for your team. Instead, you can start their employment by offering a portion of the monthly payment, and then continue to offer more assistance as employees stay at the company over certain periods or offer increases in payouts tied to job promotions or completing big projects. Your workers will see that your investment in them is mirrored by their investment in their jobs, leading them to stay with your company and continue to produce quality work.

Student loans are a serious burden on many exiting college and can take a good portion of someone’s life to repay. This has caused people to seek out ways to pay them off as soon as possible, and many businesses are taking advantage by offering student loan repayment assistance as a benefit in their hiring process. Integrating loan repayment strategies into your company will help you attract elite talent to your open positions, and ultimately fill your operation with a happy, loyal workforce.

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