Help With Student Loans Is the 'Hot' New Employee Benefit
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There’s a new employee benefit making waves in business: student loan contributions. More and more employers, including Pricewaterhouse Coopers, Nataxis and Chegg, are giving their employees a specified amount of money each month to put toward paying off their loans.
It’s a new concept, and just 3 percent of employers offered the perk in 2015, according to a survey conducted by the Society for Human Resource Managers. But student loan help is an attractive new benefit employers should familiarize themselves with.
What exactly happens when employers help pay student loans? And what are the pros and cons? Let's consider:
1. (Pro). Hiring and retention are improved.
The student debt crisis has reached an all-time high: Research from the Institute of College Access and Success found that 69 percent of graduates at public and nonprofit colleges in 2014 finished school with student loan debt.
It's no surprise, of course, that student loan assistance will likely influence a young professional’s career path. It’s a perk employees actually want, and they want it more than some traditional benefits. In fact, 55 percent of student loan holders surveyed by iontuition in July 2015 said they would choose to divert health benefit contributions from their employer toward paying off their debt. In addition, 49 percent said they would rather have student loan payment contributions than a 401k plan.
When talented professionals have more opportunities and have their pick of employers, student loan contributions may be the differentiating factor an employer needs to beat out the competition. Offering this perk can also help current employees feel satisfied and valued at work, boosting retention.
2. (Pro). Stress is reduced.
Employees are stressed by work, their home lives and their everyday finances. Add in a whopping amount of student loan debt, and professionals are even more overwhelmed by financial stress -- which can take a serious toll on their workplace performance.
A study published by Rand in 2015 found that financial concerns, along with lack of sleep and the care of family members, all put a dent in productivity. In addition, a 2015 PwC survey of working adults in the United States. showed that 37 percent spent three or more hours at work each week thinking about personal finances.
Offering student loan assistance can reduce some of that stress, helping employees to focus on work and improve productivity. Contributing to loan debt also shows employees that their company cares about their well-being -- something employees look for. In a survey of U.S. and Canadian employees by Virgin Pulse this year, 40 percent said they wished their employers cared more about their financial well-being.
Satisfying employee needs and showing that they are valued, then, helps to inspire loyalty, improve engagement and reduce stress -- improving productivity overall.
3. (Pro). Employees save money.
Some perks look great on paper but, in reality, do little for employees. But student loan assistance isn’t just some buzzword employers use to draw in fresh talent; it has a real impact on employees' livelihoods and can dramatically improve their financial standing.
A recent report by NerdWallet looked at the effect of a company contribution benefit in reducing payments for student-loan holders with an average debt of $29,400. The researchers found that when employees make minimum monthly payments and apply the benefit, the time required to pay back the loan is cut down by three years, on average. And paying off the loan three years faster means employees save about $4,100 in interest payments.
Offering student loan contributions, then, gives employees a benefit that is truly valuable, improving their finances and helping them become happier and more productive professionals.
4. (Con) But employees pay more taxes.
Student-loan contributions aren’t necessarily a slam dunk, though: There are tax implications employers should consider before offering the benefit.
As the law stands now, student loan assistance from employers is treated as taxable income. So, employees could be saving money and shaving off time from their loan repayment plan, yet paying more money in taxes.
That doesn’t mean loan contributions aren’t helpful -- but they could be more helpful if the benefit were exempt from taxes.
It turns out this might happen: If Congress passes the Employer Participation in Student Loan Assistance Act, the law will extend the tax exclusion that applies to employer-provided tuition assistance, to include contributions to student loans.
So, think about it: Despite the (current) added tax burden, student loan contributions are a hot new employee benefit your organization may want to consider. And your employees, especially the younger ones, will love you for it.
Do you think student loan contributions are the right benefit for your employees? Why or why not?