Americans with federal student loan debt will be forced to start repaying on those loans this fall due to the Supreme Court ruling against President Biden’s proposed student loan forgiveness program. Student loans have been in suspension for several years due to pandemic relief legislation, starting with the CARES Act and continuing with several extensions. Despite continuous talk about a workaround, there are four sound reasons companies should implement student loan repayment programs immediately.
Student loan debt is a huge problem and will only increase
How big is the problem?
- There is $1.76 trillion in student loan debt as of September of 2022 per the Federal Reserve.
- There are more than 45 million Americans with an average student loan balance of $41,000.
- One in five adults in America who have student loan debt.
- Student loan balances have doubled over a ten-year period on average.
Workers who carry heavy debt are stressed and not performing to their potential
A significant number of employees with student debt may suffer from severe financial hardship when repayments start causing pressure at work and at home. In fact, 40% of student loan borrowers are not sure if they’ll be able to resume payments. That stress impacts work productivity and attitudes.
Financial burden has wide ranging consequences. Overall, people are waiting longer to marry, purchase a house, start a family, or save for retirement. Here are some statistics:
- 42% of employees with student debt aren’t able to save for retirement.
- 30% of borrowers have not paid down any balance even after five years of payments.
- 50% of surveyed employees aged 22-33 worry about student debt. (American Student Assistance survey)
- 52% of student loan borrowers rate their financial position as poor or very poor.
Student loan repayment programs helps retain workers
Hiring managers have faced a difficult market when it comes to finding quality workers, so they want to ensure their workforce is happy. It’s expensive to replace a worker with estimates ranging from $10,000 to 125% of the worker’s annual salary. There’s also the intangible emotional impact on the team with whom the employee worked.
Naturally, it’s much more efficient to keep an employee than to replace them. One of the ways employers are keeping workers happy is by offering Lifestyle Spending Accounts, which can include a Student Loan Repayment component. Employers can also offer a Student Loan Repayment Program as a standalone benefit.
Student loan repayment programs attract new workers
When evaluating companies, candidates eye benefits that target their individual needs. One survey noted 86% of employees would commit to a company for five years if offered a student loan repayment program. Thirty-nine percent of employees say a student loan repayment program is an important benefit. Considering 70% of students graduate with student debt, employers should use these programs as incentive to attract those young employees. But don’t ignore the fact that many student loan borrowers are older. In fact, all age groups can have student loans.
The timing is right for immediate action. Now through the end of 2025, employers can provide up to $5,250 in student loan repayment dollars. Both employer and employee benefit because that money is tax-free for the employer and reduces the employee’s monthly bills.
An experienced third-party administrator can easily set up a required IRC Section 127 program. In fact, some companies already have these programs. Please keep in mind that if a company also offers tuition reimbursement, $5,250 is the maximum pre-tax benefit allowed for both tuition reimbursement and student loan repayment benefits combined. Anything above that amount is considered taxable income.
There’s no real need for employers to hold off on offering these programs. Even if the Biden administration’s student loan forgiveness program is upheld it covers only up to $10,000 in student loans (up to $20,000 for those students who were granted Pell Grants). There would still be well over $1 trillion in student debt remaining, a huge burden that weighs on many workers.
By offering student loan repayment programs, employers can help alleviate worker stress, keep workers actively engaged, and give hiring managers a benefit that attracts quality workers.
For immediate help to set up a student loan repayment program request a quote here.
Download our white paper The Business Case for Student Loan Repayment and get a detailed breakout of why this benefit might be the right fit your company and why businesses believe now is the time to make the investment.