Millions of debt-ridden college graduates want help paying off their student loans. This year, they may just get it from their employers.
While a growing number of companies have started offering student loan repayment as an employee benefit in recent years, the combination of a new tax break, stiff competition for workers and heightened attention on the nation's growing student debt could drive a big boost in the benefit this year.
About a third of companies say they're considering introducing student loan repayment assistance in 2022 or 2023, with 3% already planning a roll out this year, according to a study from the insurance firm Willis Towers Watson. Plus, companies with existing programs are improving the benefit through larger contributions and wider parameters for eligibility, experts say.
That sort of growth could take what has been a relatively niche benefit — it's currently offered at less than one in 10 companies — and bring it into the mainstream.
Employer student loan contributions are getting bigger
The value of a student loan repayment benefit varies by industry, but in general, companies are being more generous with their monthly contributions.
Gregory Poulin is co-founder and CEO of Goodly, a student loan benefits provider and fintech company based in San Francisco. Among Goodly's clients, the average employer contribution toward student loans has increased by around 50% since the pandemic hit, he says. Before the pandemic, companies typically contributed an average of about $83 a month toward each employee's student loans. That figure is closer to $150 today and the largest payments can go as high as $400, Poulin says.
In some cases, companies with existing programs are simply setting aside more money for the benefit. Fidelity Investments, which launched its program in 2016, recently increased the maximum lifetime limit per employee from $10,000 to $15,000.
And Chegg, the student-focused learning platform that was another early adopter of student loan benefits, started boosting payments based on tenure. All full-time employees with student debt have received up to $1,000 in student loan payments each year since the program started. In 2019, the company added a new program for entry-level employees through vice president-level workers who have been with Chegg for at least two years. Those employees are eligible for up to $5,000 annually, on top of the $1,000 cash payments. To pay for the program, Chegg sold stocks that were set aside for executive team compensation.
Other companies started brand new programs. McLaren Health Care, a hospital network operating in Michigan, launched a new student loan assistance program at its Flint location this month. Payments start at $200 per participant, per month. McLaren then increases the amount to $300 in the second year of participation and to $450 in the third year.
The program is aimed at employees in high-demand positions including registered nurses, respiratory therapists, pharmacists and medical technologists. McLaren Flint will pay a maximum of $15,000 toward an eligible employee’s student loans.
Most repayment assistance programs are designed so that employees have to continue making their minimum monthly payments and then the employer contribution acts as an additional payment. That helps employees pay off their debt quicker while saving money on interest.
Let's say you owe $30,000 in student loan debt at a 4.6% interest rate and the term of your loan is 10 years. You'd be paying $312 a month.
With a $150 monthly contribution on top of your monthly minimum, you'd pay off your loans in about six years instead of 10. Bump up the employer contribution to $400 a month, and you'd be debt-free in under four years.
More employees are getting access to student loan assistance
It’s not only contributions that are increasing at some companies. Eligibility parameters are getting bigger, too.
When Memorial Hermann Health System, based in Texas, introduced a student loan repayment benefit in 2016, the goal was to attract top talent and address a shortage in nurses, says John Eshleman, director of benefits at the hospital system. The program was a quick success — Memorial Hermann found first-year retention with registered nurses went up 12% in the first two years of the program.
The company currently reimburses up to $400 a month toward loans attached to clinical degrees or up to $200 toward loans tied to non-clinical degrees. The lifetime cap is $20,000 per employee.
Memorial Hermann started out by offering the benefit only to employees who had graduated in the last three years. In 2020, it was expanded to apply to employees who have graduated in the past five years.
“We’ve helped our employees reduce student loan debt by over $5 million," Eshleman says.
In addition to increasing its lifetime max, Fidelity also widened eligibility for its benefit last yer. The company ended a waiting period that required employees to spend at least six months with the company before getting the perk. Now workers can enroll on the first day of employment.
Student loan assistance is now a better deal for employees
One big reason student loan repayment assistance is primed to continue growing, experts say, is because it makes more sense for the companies' bottom lines now.
Before Congress passed the CARES Act in 2020, employer contributions toward an employee's student loans were considered part of the employee’s income, meaning employees had to pay income tax on whatever amount of student loan repayment assistance they received. Not anymore.
An employer can now pay up to $5,250 per year toward an employee's student loans on a tax-free basis through 2025. Plus, the employer now gets a payroll tax exclusion on the contribution amount.
Prior to the implementation of this new tax break, an employer's annual contribution of $5,250 would have cost both the company and the employee about $400 in payroll taxes, according to the national law firm Bradley. Moreover, an employee with a 22% federal income tax rate would owe $1,155 in federal income taxes. So in the end, the employee ends up with a net benefit of just about $3,695. And the employer would have paid $5,650 for it. Now, every dollar a company spends on a qualified student loan repayment program goes toward its intended purpose — paying down debt.
“That got a lot of employers’ attention,” says Scott Thompson, CEO at Tuition.io, an education assistance benefits platform. “Over the last few years, as we've talked with more and more employers, one of the impediments has always been, 'why is this a taxable benefit?'"
After the tax rules changed, Google launched its own student loan repayment program. As of this month, the tech giant matches up to $2,500 in student loan payments per employee, per year.
Favorable tax rules stay in place through December 2025, though Congress can vote to extend rules or make them permanent, which some experts think is likely.
As Poulin, with Goodly, points out, 401(k) legislation was a temporary provision at first, too.
"Then it was extended and ultimately made permanent," he says. "That's what we anticipate will happen with student loan repayment as well."
If you're in the job market, use this tool to find companies that will help you pay off your student loans faster.
This story has been updated to clarify how Chegg sold stocks to fund its debt repayment program.