Included in the CARES Act was a potential game changer for employees and employers alike. For the first time, employers were able to help their employees pay down their student loans through tax-free contributions.
As of December 2020, this legislation has been extended for five years. Employers will have the opportunity to provide this potentially life-changing benefit to their employees through at least December 2025. Under the right circumstances, this benefit could have a huge impact on the financial situation, life planning, and overall job satisfaction and performance of your employees.
This benefit can also be a boon for employers, allowing you to attract and retain talent, diversify your talent pool, and offer an innovative new way to support your employees’ financial and mental wellbeing.
In short, employer-sponsored student loan assistance is a win-win for employers and their employees—and it could represent the future of benefits offerings.
Let’s get into it. How does this benefit work?
The beauty of this new benefit is that it’s fairly straightforward for the employer to implement, but packs a big punch of impact for each employee with loans.
Employers can contribute up to $5250 tax-free to employees’ student loan payments annually, which comes to just about $437 per month. Considering that the average student loan payment is $393, this could potentially double your employee’s monthly payment. Even contributing a portion of this full amount helps—an extra $50 or $100 each month can really speed up the repayment process. (We’ll talk about that more later on.)
Plus, any loan that is considered a “qualified education loan” by the IRS is eligible, regardless of whether they’re privately held or federal.
Why should employers consider implementing this benefit?
This benefit can significantly improve your employees’ overall job satisfaction, company culture, and ability to build and retain an engaged and fulfilled team. Here are five key advantages of offering employee-sponsored student loan assistance.
1. Adapt your benefits to a remote worker’s world
The pandemic upended nearly every element of daily life, but especially work life and expectations. Many workplaces that started the year in-office were forced to quickly shift to a fully remote setup.
One year later, many employees report that they prefer working remotely and want the option to work from home in perpetuity. But this means that the perks that were once attractive to in-office employees won’t hold the same appeal.
Free lunches and snacks? Commuter benefits? Those offerings won’t mean much to an at-home worker. But extra funding for their loans? Now that creates an impact wherever you are.
2. Attract and retain top talent
Talk about a competitive edge. This innovative benefit is shaping up to be one of the most in-demand employee assistance programs in the modern workplace. Employees also may be more likely to stay in a job longer if their employees offered this support.
And although this benefit is still relatively new, it is swiftly growing in popularity and could soon become mainstream. In fact, the Society for Human Resource Management has predicted that one in three employers may soon offer this benefit.
3. Support your employees’ mental health and wellbeing
Mental health is top of mind for HR professionals in 2021—and for good reason. It impacts every part of life, including the ability to perform well at work. A lack of mental health support can lead to low morale, reduced productivity, and increased employee turnover.
It’s not a big leap to say that thoughtfully managing student loans can be a form of caring for mental health. Research has shown a clear connection between mental health and student loans. According to a 2018 report we produced in partnership with Student Debt Crisis, 86% of respondents said that student debt is a major source of stress. Of those respondents, one in three said it’s their biggest source of stress.
Implementing this benefit highlights your company’s empathy and commitment to creating a healthy, supportive environment for your employees.
4. Demonstrate your commitment to Diversity, Equity, and Inclusion
Student debt disproportionately impacts marginalized groups across your employee base. Women hold ⅔ of all student debt. Black, indigenous and people of color have more debt, are systematically more likely to default, and because of the intersection of the racial wealth gap, they hold their debt for longer periods collecting greater amounts of interest.
Committing to student loan assistance helps break down these systemic barriers, giving employers a unique way to take their DEI initiatives one step further and act on their commitment to creating a more equitable workforce.
5. Help your employees plan for their future
Student loans can be a major hurdle to achieving financial freedom. This has led many borrowers to delay major life goals, like saving for retirement or buying a home. By giving your employees the support they need to pay down their loans, you’re also offering the stability they need to map out their life.
How effective is this benefit?
That extra support can significantly boost the speed and ease in which their employees are able to pay off their loans.
As an example, we’ll introduce you to two borrowers, Sam and Sasha. They each have about $40,000 in their outstanding balance, with an interest rate of 9.00%. Following their loan terms, they both expect to pay off their loans over a twenty-year period.
Sasha’s employer offers the student loan assistance benefit and contributes $100 per month. With the extra $100 added to her own monthly payment, Sasha will be on track to pay her loans off in 12 years. You read that right—the $100 employer contribution helped shave a full eight years off of her total loan lifecycle.
Meanwhile, Sam will continue to make his payments every month for the next twenty years. This leaves him with less cash to put towards his long-term goals, less financial stability, and less foresight for his future career.
How can Summer help?
Our comprehensive digital solution can help your employees optimize their employer contribution and get on track towards a repayment plan that works for their unique situation and goals.
Help your employees conquer their student debt. Request a personal demo to get started.