Nowadays, more than two-thirds of college students graduate with loans. While politicians duke it out over loan payment reforms, business owners are jumping into the fray to help students knock down their debt to attract and perhaps most crucially, retain top talent.
According to Student Loan Hero, 69 percent of the Class of 2019 took out student loans, and they graduated with an average debt of $29,900. In addition, 14 percent of their parents took out an average of $37,200 in federal parent PLUS loans to help pay for their children’s education. But it’s not just like the Class of 2019 was on some kind of scary spending spree. Indeed, 44.7 million borrowers in the US owe a combined $1.71 trillion in student loan debt, which represents nearly $74 billion more than the US credit card debt burden.
Prior to the pandemic, 11.1 percent of student loans were delinquent or in default by 90 or more days. Recognizing the burden that these repayments put on the younger population many of which struggled to retain employment during Covid-19, lawmakers halted monthly student loan repayments. Payments on these loans remain on hold under executive order but are expected to resume in January 2022 unless additional directives are made.
The topic of student loan forgiveness and secondary education reform, in general, remains a hot-button topic on both sides of the aisle. Both parties agree that the US economy could benefit greatly from student loan reform, but disagreements emerge on how to accomplish this task. While the politicians continue to squabble, businesses are increasingly offering student loan repayment programs as a perk to their employees. But is it feasible for you, as a small business owner, and what are the benefits?
In this tight labor market, the biggest perk is going to be attracting that new college graduate talent. Further, offering to repay a portion of student loans can help offset a lower base salary. Indeed, this perk is much revered by the college grad set. They would prefer it over stock offerings or increased 401K contributions because the loans are the financial burden that they are experiencing in real-time (and for many new grads, it’s their first experience being in debt, and it’s not a pleasant one!). Further, the younger set views employers paying off their student loans as they’re making an investment in their development and well-being, which in turn helps to foster loyalty to your company and potentially stem costly employee turnover.
As to how you should go about setting up such a payment program, there are two big considerations. The first is whether you’ll be cutting employees a check to pay to their loan servicer or whether you’ll effectively cut out the middleman and pay the debt directly. The second big decision is whether you’ll match employee contributions up to a certain limit on an annual basis or whether you’ll implement a lifetime cap and reimburse a certain amount of the loans over a predetermined period say, reimbursing a lifetime limit of $10,000 over 10 years. There are certainly pros and cons to each method, so it’s all about figuring out what will work best for your business should you choose to offer this as a new benefit to your employees.
On the fence about whether this is a feasible option for your company? Luckily, lawmakers have been hard at work to make it a compelling offering. As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, employers are eligible to offer up to $5,250 in student loan repayments to an employee within a one-year period. The payments for employees are considered tax-free and employers don’t have to pay payroll taxes on the money meaning that it can certainly benefit both parties! Originally, this perk was set to expire in 2020, but it was recently granted an extension that allows the benefit to continue through the end of 2025.
