Recent legislation favors employers that offer student loan repayment benefits

American workers are drowning in student loan debt.

“I have been in the college student loan finance space for nearly 30 years,” said Stacey MacPhetres, senior director of education finance for Bright Horizon. “If you had told me back then that we would be looking at student loan debt over $1.8 trillion total, I would have thought that was not even a remote possibility.”

MacPhetres shared her insights during a March 23 webinar, “An Employer’s Guide: The COVID-19 Relief Bill and Student Loan Repayments.”

The average student loan debt is $37,500, with 67 percent of borrowers owing more than $10,000. More than 30 million Americans owe more than $10,000, with another 14 million owing less than that amount.

Many employers are offering student loan repayment assistance to help increase employee recruitment and retention, and improve productivity by reducing stress.

Workers place a high premium on this benefit:

• Forty-five percent of adults feel stressed about their student loans.
• Seventy-six percent of employees say student loan repayments are a determining factor in accepting a job.
• Employers offering student loan programs report 44 percent lower turnover.

Recent legislation is making it easier for employers to offer this benefit.

“This actually has been a good year for borrowers in the student loan space,” MacPhetres said. “There have been three pieces of legislation which, combined, have affected student loan borrowers. With the CARES Act last March, federal student loan requirements for borrowers ceased. All borrowers were placed in automatic forbearance that has been extended three times and now is extended through Sept. 30, 2021. But the legislation actually said at least September 30, so there is some thinking that the forbearance and zero percent interest rate might stay in place longer.”

The recent American Rescue Plan Act includes a provision to make future student loan forgiveness tax-free.

“This is great, but not quite as great as a lot of people thought,” she said. “What this really allows is for borrowers who are in one of the income-directed repayment programs to have forgiveness after 20 or 25 years of repayment to be made tax-free. It sounds great, but to date, only 32 borrowers have qualified, and most borrowers will qualify after the current expiration date of that provision.’

In addition, the tax-free employer loan repayment provision up to $5,250 annually has been extended. This provision is the most beneficial to employers, MacPhetres said.

“Since we began doing student loan repayment in 2015, it’s been the question everyone has been asking,” she said. “Is this tax-free? It will be tax-free through 2025, which gives employers a real opportunity to jump in and participate.”

Employers can tailor a program that best fits their needs. Options include:

• Targeted programs, with different repayment amounts
• Payments to the loan servicer or the employee.
• Allowing repayment only for employees who have completed their degree.
• Allowing concurrent participation in student loan and education assistance programs.
• Offering coaching for employees.

Vertex Pharmaceuticals provides student loan assistance to its employees.

“Our program provides for contributions directly to the student loan provider,” said Katie Quirk, senior director of global benefits and mobility at Vertex Pharmaceuticals. “We do step it up every year. Every year you are in the program, we increase the contribution to the loan provider by $25, not based on tenure but on participation in the program. On your date of hire, you are immediately eligible for that program. When you leave, there is no claw-back provision. Anything we provided you as an employee, if you leave, we are not going to ask for that money back.“

Both Quirk and MacPhetres recommend making payments to the loan servicer, not the employee. “We can make a lot more progress toward debt reduction when we pay directly to loan services,” MacPhetres said.

They also suggest making loan assistance part of a comprehensive package that can include such things as tuition assistance.

“We also provide financial counseling and strongly encourage it,” Quirk said. “It’s one-on-one counseling where the counselor helps identify payment strategies and evaluate repayment and financing options so employees are taking the company contribution and maximizing it.”

“You can’t say enough about including a coaching piece to the benefit,” MacPhetres added.

Employers should take a close look at providing this benefit even if Congress eventually enacts some form of debt cancellation.

“Several options for new student loan legislation are under consideration, with the strongest support for cancelling $10,000 in student debt per borrower,” MacPhetres said. “However, for many employees, this will not solve their debt worries.”

Quirk encourages employers to explore their options.

“There are so many ways to structure a student loan repayment program,” she said. “You can do it so it’s almost cost-neutral to you as an employer, or you can do it in addition to your regular benefits budget.”

MacPhetres agreed. “There are almost an unlimited number of plan design options,” she said. “It depends on what you as an organization want to accomplish.”

READ MORE

• Financial challenges of young adults around the world
• Student loan repayment assistance: A benefit that employers and TPAs should take seriously
• Repaying student loans especially stressful for these employees during pandemic

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