By Dax Hill
With unemployment near historic lows, employers are looking for unique and competitive ways to attract and retain employees. One benefit that’s gaining traction is helping employees with student debt.
The numbers surrounding student loan debt are staggering – and growing:
- Student loan debt is higher than credit cards debt and auto loans. Only home loans surpass student loan debt.
- Approximately 45 million Americans owe $1.6 trillion in student loan debt.
- Among the class of 2019, 69% of college students have loans, with graduating debt of $29,900 on average.
These numbers are having graduates ask themselves tough questions: “Do I prioritize my student loans over my retirement plan?” It’s also impacting their ability to save for the future. A recent Boston College study shows college graduates with student loans save approximately half the amount as their “no-loan” counterparts by age 30.
According to the Gallagher 2019 Retirement Pulse Survey, assistance with budgeting, debt management and student loans are a few of the financial wellbeing options that help answer this question.
According to a 2019 study by Society for Human Resource Management, approximately 8% of employers are providing contributions to help employees with their student debt. This is an increase from 5 years ago, when only 3% of employers provided student loan assistance.
There are several options that organizations can take to provide financial assistance to employees:
- Offer refinance and/or student loan coaching. The lowest cost approach is to provide financial coaching specializing in college debt. These providers help employees, by guiding them to better finance terms, income-based repayment plans, or possible government forgiveness programs.
- Provide an employer contribution directly towards the college loan. The employer payments would accelerate the loan repayment and free up funds for the employee. This option also provides flexibility to the employer. For example, organizations can base eligibility on tenure, work positions, degrees, or geographically, etc. This flexibility enables employers to tailor a benefit that aligns with their workforce recruiting and retention objectives. It’s important to note that currently employer student loan contributions are a taxable benefit to employees. However, there’s proposed legislation (H.R. 1043) that would enable employers to provide an annual tax-free benefit of $5,250 per employee.
- Employer contribution to the 401(k). In order to provide a tax-deferred benefit to employees, some organizations are making contributions to the employee’s 401(k) instead. These organizations are conditioning employer 401(k) contributions to employee’s student loan payments. This third option has gained much attention since 2018, when a large employer received a private IRS ruling that allowed 401(k) contributions to be tied to employee’s student loan contributions. Under this plan design, the employee can only receive one type of employer contribution, not both. It’s important to note that the plan that received the private letter ruling is a large plan with nearly 30,000 participants and more than $6 billion in assets. This scale can be important, as an organization interested in executing a similar program would need to consult with ERISA counsel to determine if their own IRS private letter ruling is required, which would increase employer costs.
The escalating cost of college is having a negative impact on graduates, however employers are in a unique position to alleviate some of this financial stress. By offering a student loan assistance program, it may provide a win-win opportunity. Employees receive a valued benefit that could knock years off of their student debt, while employers become more attractive as they compete for top talent.
Dax Hill, GBA
Area Vice President
Health & Welfare Consulting
Gallagher Benefit Services, Inc.
This material was created to provide accurate and reliable information on the subjects covered, but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.
Gallagher Benefit Services, Inc., a subsidiary of Arthur J. Gallagher & Co. (Gallagher), is a non-investment firm that provides employee benefit and retirement plan consulting services to employers. Securities may be offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services may be offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Investment advisory services, named and independent fiduciary services may be offered through Gallagher Fiduciary Advisors, LLC, an SEC Registered Investment Advisor (GFA), which is a single-member, limited liability company with Gallagher Benefit Services, Inc. as its single member. GBS/Kestra-CD(344301)(exp032021)