Student loan reimbursement as an employer-provided benefit is all the rage right now. Well, perhaps that’s overstating things a tad: Only 3 percent of employers currently offer this perk, according to the Society for Human Resource Management.
But with high-profile employers like Price water house Coopers and Fidelity recently announcing their own student loan repayment benefit plans, and presidential candidates talking about solutions for the nation’s collective $ 1.3 trillion student debt, it’s a safe bet many more companies will soon jump on board.
Tuition reimbursement programs, whereby an employer reimburses employees for the costs of furthering their education, have been around for years. So have loan repayment assistance programs, although they’ve been typically limited to federal agencies and public interest employers.
Now, more private sector employers are stepping up to the plate to help indebted employees. Research increasingly shows a student loan repayment benefit to be a powerful recruitment and retention tool: 76 percent of respondents to American Student Assistance’s “Life Delayed” survey agreed that, all other things being equal, their choice to take a job would be considerably affected or decided based on an employer’s willingness to offer a student loan repayment program.
How Does It Work?
With many of these new repayment programs just getting off the ground, there really is no standard set of rules yet. But in general, your employer agrees to pay a specific amount toward your student loan debt or reimburses you for up to a specific amount of what you paid toward your student loans in the given year.
The amounts a company will pay, and for how long, vary; PwC, for example, will pay up to $ 1,200 per year for a total of six years, while financial firm Natixis Global Access Management will pay a $ 5,000 lump sum to employees who have been with the company five years and $ 1,000 on every work anniversary for up to five more years.
Again, this varies from company to company. You will usually need to be employed for a set amount of time and make regular payments on your student loans as well. Additionally, some plans will only cover federal student loans. Talk to the human resources department to find out the specifics about your company’s plan.
Is the Benefit Tax-Free?
Unfortunately, not yet. While up to $ 5,250 per year can be provided tax-free to the employee for tuition reimbursement, student loan reimbursement under current IRS regulation is taxable to the associate. Your employer may deduct the tax directly from the payment or your paycheck, or you may be responsible for it when you file your tax return each year. Talk to your payroll office to learn more.
Employers are also entitled to a deduction of up to $ 5,250 for tuition reimbursement paid on behalf of the employee, but no similar incentive for student loan reimbursement yet exists.
At the federal level, the proposed Student Loan Repayment Assistance Act would make student loan repayment like a 401(k) plan, where the employee determines how much she would like to pay toward her student loans on a monthly basis, and the employer determines the rate at which it will assist. Under the proposal, an employer would enter into an agreement with an employee to assist her with student loan repayment up to $ 6,000 per year with a lifetime cap of $ 50,000, and employee and employer contributions would not be subject to either income tax or payroll tax.
However, it’s worth noting that the Student Loan Repayment Assistance Act is just the latest iteration of proposed federal legislation on this issue, none of which to date has moved in Congress because it’s been deemed too expensive.
Some states are taking it upon themselves to get the ball rolling. For example, in the Student Loan Ranger’s home state of Massachusetts, legislation is being considered that would allow an employer a tax deduction of up to $ 3,600 per year for student loan reimbursements made on behalf of employees, and that payment would be exempt from being taxed as income to the employee.
Is That All?
No – there are new student loan repayment benefits being announced every day, like Student Loan Genius’ 401(k) Contribution Student Loan Benefit, and several employers are teaming up with private lenders and finance companies to offer employees student loan refinancing.
But remember, you cannot “refinance” a federal student loan with the federal government; the only thing you can do is convert your federal loan into a private loan, or combine your federal and private student loans together, with a private lender and then refinance the new loan at a new rate. The Student Loan Ranger always warns against this practice, because the interest rate may appear attractive, but you’ll lose all your benefits and protections like unemployment deferments and income-driven repayment plans.
With student debt on everyone’s mind these days, there’s no question that more employers will be lining up to offer loan reimbursement as a benefit. And it seems appropriate, as who benefits more from a college-educated workforce than the private sector employers themselves?
Hopefully, the popularity of this workplace benefit will bring about the passage of legislation like the Educational Loans Repayment Assistance Act – that would be a huge relief to the nation’s 43 million student loan borrowers.
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