Employer-sponsored student loan repayment programs are growing in popularity. Corporate retirement plans can be a vehicle for delivering these programs, but other options exist. Most important, however, is assessing the appropriateness of this type of program for your organization.
Jumping on the Bandwagon:
Student Loan Repayment Programs
Student loans generate crippling debt in the United States, totaling more than $1.7 trillion. Organizations recognize student loans are a real problem. The value of student loan repayment programs, however, extends beyond merely shrinking an outrageous number.
The Savings Struggle
For millions of workers, paying down student loan debt is getting in the way of saving for retirement. When employees can’t save, they tend to work longer. This costs the employee valuable time, but it also costs the employer valuable dollars: Older workforces tend to increase benefits and insurance costs.
Talent Attraction and Retention
Recent surveys of college graduates indicate they would be more likely to accept a job with a company that offers a student loan contribution program. As an employer, if you are in a competitive market for recruiting new talent, having a repayment program will make you more attractive to prospective employees.
Options for Repayment Programs
In mid-2018, Abbott Labs made national headlines when they rolled out a student loan repayment solution that involved the company’s retirement plan. Long story short, that structure and plan is specific to that corporation due to the fact that the IRS approved it specifically for them. However, for the rest of the employer-sponsored retirement plans, there are options.
As part of the CARES Act, passed in early 2020, employers are allowed to contribute $5,250, tax-exempt, to an employee’s student loans. Previously, this was only allowed for tuition expenses. The Consolidated Appropriations Act of 2021, signed into law at the end of 2020, extended this benefit through 2025. This is welcome relief for both employers and employees and certainly a solution worth exploring.
Additionally, some companies and providers have pioneered more unique programs such as allowing trade-ins of vacation days or paid time off to earn money toward a student loan repayment.
What Comes Next
It’s easy to jump on the student loan repayment program bandwagon, especially with such staggering numbers regularly appearing in the news. Despite the value of this type of program, it might not be the right fit depending upon your employee demographics and organizational benefits strategy.
To better evaluate the appropriateness, consider the following steps:
- Start with an employee survey to better understand their needs.
- Complete an internal budget analysis and determine: Do funds exist for such a program? Is restructuring necessary and/or feasible?
- Consider if this program could be facilitated through your corporate retirement plan. Initiate a discussion with your plan’s recordkeeper to better understand their capabilities in this area.
- When you are ready to move forward, assess multiple providers through a focused request for proposal process.
Student loan debt is an ongoing crisis for American workers. As an employer, understanding how to implement a repayment program can be complex, especially when delivered through your corporate retirement plan. Reach out to the team of experts at Francis Investment Counsel to better understand your options. Our team will help you take care of your plan and what matters most: your employees.