A little known provision of the CARES Act helps employees pay their student loans
(This article originally appeared in the Philadelphia Inquirer)
Recent research has shown that the millennial population (those generally born between 1981 and 1996) now make up the largest generation in the U.S. labor force, and that the up-and-coming GenZ’ers (those born after 1996) are expected to cause an influx of roughly 60 million job seekers in the next decade.
There’s one thing many of these younger workers have in common: They’re shouldering a massive amount of student debt from their college loans — $1.6 trillion, according to some sources. The Biden administration is toying with the idea of forgiving some of this debt — as much as $10,000. But that is still a ways off. Meanwhile, the numbers keep growing at a rate of five times as much as our economy.
However, thanks to the March 2020 CARES Act, businesses have been given more incentives to help pay down their employees’ student loans. The provisions of the legislation — which were extended to 2025 in a subsequent stimulus bill — now allow employers to reimburse or pay down directly as much as $5,250 of their employees’ student loans every year. And that amount will be non-taxable to the employee yet still deductible by the employer.
This is an attractive — and affordable — benefit to offer, particularly during this tight labor market.
According to Scott Simmons, chief operating officer of Tuition.io, a platform that helps companies facilitate student loan repayments, employers have a growing appreciation of the financial burden that student loans represent for their employees and the demand for this benefit has been significantly increasing.
“For many employees, repaying their student loans is a far higher priority than saving for retirement or other traditional benefits offered by employers,” he said. “By adding student loan payments, employers offer a more relevant benefit to a large segment of their workforce that is greatly appreciated and helps attract new talent.”
It also helps with retention. Simmons said that Tuition.io’s clients typically see anywhere from 20% to 40% lower rates of turnover in employee groups that participate in their student loan repayment benefit compared with employees who don’t participate. He also said this benefit can meaningfully impact a company’s diversity and inclusion goals because studies have shown that non-white students are more significantly affected by student debt responsibilities than whites. (The Brookings Institution estimates that, on average, Black college graduates owe $52,726 in student debt while white college grads owe closer to $28,006).
Julie Olters, a human resources manager at Manasquan Bank in New Jersey, implemented a student loan repayment program in early 2020 and is already seeing benefits.
“It’s been very popular among staff,” she said. “We have 23 loans enrolled and have had one employee already successfully pay off their student loans sooner than anticipated.” Olters said that, on average, three to four employees a month join the company’s overall financial wellness program, and almost 15% of their employees take advantage of the loan repayment benefit.
A student loan repayment program has also proved popular for the employees at Integrichain, a data analytics and business process firm in Philadelphia. According to Vickie Kozhushchenko, a senior vice president at the company, offering a program to pay down student loans has been a desirable benefit, considering that the average age of her workforce is 32.
“Offering a loan repayment assistance program allows an employee to accelerate the pace at which they repay their loan, gives them a set of tools to help manage their loan repayment, and helps them build financial independence and critical knowledge in managing their own finances” she said. The program, which began more than four years ago, “helps take one [more] personal finance concern off their list and allows them to be more productive.”
If you’re considering this benefit at your company, the good news is that it’s not difficult to implement.
Most employers, regardless of size, tend to rely on such services as Tuition.io or Gradifi, which can connect the major loan repayment services with their payroll systems. After an employee is added to the system, auto-emails are generated for the worker to complete a full profile and enroll. From there, loans are usually paid directly from the platform to the loan service with minimal administrative involvement.
Tuition.io’s Simmons said that the setup and administration for the employer are “straightforward and far easier than most other employer benefits” and that “implementation typically takes four to six weeks, depending upon the complexity of the benefit design and the employer’s specific requirements.” Some employers, such as Integrichain, usually require a new employee to wait 90 days before joining the program.
And just because a company can offer as much as $5,250 a year tax free doesn’t mean you have to. Integrichain starts by paying $100 a month and then raises that amount to $200 after a year of service.
“We felt it was part of our responsibility as an employer to help ease that burden and offer a meaningful benefit that employees could take advantage of easily and see quick results,” Kozhushchenko said. “For an employee to have an additional $100 to $200 per month added to their loan repayment can cut down their time to repay by months, if not years.”