Little-known provision in CARES law helps employees pay off student loans
Recent research has shown that the millennial population (typically born between 1981 and 1996) is now the largest generation of the U.S. workforce, and that the rising generations (those born after 1996) are expected to cause an influx of around 60 million people. job seekers over the next decade.
There’s one thing many of these young workers have in common: They take on huge student debt with their college loans – $ 1.6 trillion, according to some sources. The Biden administration is playing with the idea of ââforgiving some of that debt – up to $ 10,000. But it’s still a long way off. Meanwhile, the numbers continue to grow at a rate five times that of our economy.
However, thanks to the CARES law of March 2020, companies were given more incentive to help repay their employees’ student loans. The provisions of the law – which were extended until 2025 in a subsequent stimulus bill – now allow employers to repay or directly repay up to $ 5,250 of their employees’ student loans each year. And this amount will be tax-free for the employee but still deductible by the employer.
This is an attractive – and affordable – benefit to offer, especially during this tight job market.
According to Scott Simmons, COO of Tuition.io, a platform that helps businesses make it easier to repay student loans, employers are increasingly appreciating the financial burden that student loans represent on their employees and demand for this benefit has increased dramatically.
âFor many employees, paying off their student loans is a much higher priority than saving for retirement or other traditional benefits offered by employers,â he said. “By adding student loan payments, employers are providing 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 Tuition.io customers typically saw between 20% and 40% lower turnover rates in groups of employees who participate in their student loan repayment compared to employees who do not. He also said that this benefit can have a significant impact on a company’s diversity and inclusion goals, as studies have shown that non-white students are more 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 graduates owe closer to $ 28,006).
Julie Olters, head of human resources at Manasquan Bank in New Jersey, implemented a student loan repayment program in early 2020 and is already seeing benefits.
âIt was very popular with the staff,â she said. âWe have 23 loans enrolled and one employee has already managed to pay off his student loans ahead of schedule.â Olters said that on average, three to four employees per month join the company’s overall financial wellness program, and nearly 15% of their employees enjoy the loan repayment benefit.
A student loan repayment program has also proven popular for employees of Integrichain, a data analytics and business process company in Philadelphia. According to Vickie Kozhushchenko, the company’s senior vice president, offering a student loan repayment program has been a desirable advantage, given the average age of its workforce is 32.
âProviding a loan repayment assistance program allows an employee to speed up the rate at which they repay their loan, gives them a set of tools to help them manage their loan repayment and helps them acquire a financial independence and essential knowledge in managing one’s own finances, âshe said. The program, which began over four years ago, “helps take one [more] personal finance is not on their list and allows them to be more productive. “
If you are considering this benefit in your business, the good news is that it is not difficult to implement.
Most employers, regardless of size, tend to rely on services like Tuition.io or Gradifi, which can connect major loan repayment services to their payroll systems. Once an employee is added to the system, automatic emails are generated for the worker to fill out a full profile and sign up. From there, loans are usually paid directly from the platform to the loan department with minimal administrative involvement.
Simmons of Tuition.io said that setting up and administering for the employer is “straightforward and much easier than most other employer benefits” and that “implementation typically takes four to six weeks. , depending on the complexity of the benefit design and the specific requirements of the employer. âSome employers, like Integrichain, typically require a new employee to wait 90 days before joining the program.
And just because a business can offer up to $ 5,250 a year tax-free doesn’t mean you have to. Integrichain starts by paying $ 100 per month and then increases that amount to $ 200 after one year of service.
âWe felt it was our responsibility as an employer to help ease this burden and provide a significant benefit that employees could easily enjoy and see quick results,â Kozhushchenko said. “For an employee, adding an extra $ 100 to $ 200 per month to pay off their loan can reduce their repayment time by months or even years.”
Gene Marks is a Chartered Accountant and owner of Marks Group, a technology and financial management consulting firm in Bala Cynwyd.