This is the time of year when businesses roll out new employee benefits and fine-tune existing ones as part of open enrollment. One of the most popular benefits involves student loan repayment for employees. Here’s what you need to know about it.
Rising College Debt
It’s not surprising that the millennial workforce is interested in a student loan repayment program, as higher education debt has reached all-time highs. The Consumer Financial Protection Bureau (CFPB) found that outstanding student debt tripled to $1.4 trillion from 2008 to 2017. As a result, the CFPB believes employer-sponsored third-party student loan repayment assistance programs will grow quickly in the future.
These loan repayment benefits are gaining a lot of interest from Millennials – your employees and job applicants. When unemployment is near an all-time low and competition for the best talent is high, it makes sense to explore the possibility of adding this repayment benefit.
How It Works
Employers have the flexibility to decide how much to give in monthly repayment benefits. Working with an administrative provider, the company can direct its loan repayment contributions straight to employees’ loans.
The plan sponsor may also offer advice to employees to help them pay off their loans more quickly and to those contemplating loans for college-age children. Some may even provide referrals to student loan refinancers, who may offer lower interest rates on existing debt.
Currently, the IRS considers this benefit compensation, which means employers must also pay payroll tax on the amount. The benefit is also taxable to employees. While Congress talks about making this benefit more tax-advantaged, you should talk to your tax advisor to learn more.