Student Debt Repayment: The Next Big Employee Benefit
**Blog last updated August 26, 2022:
On August 24, the U.S. Department of Education announced a final extension of the federal student loan relief through December 31. The relief had been set to expire on August 31, and payments on loans will now resume in January 2023. ExtensisHR will continue to monitor for updates and will revise this post accordingly.
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Quick look: The federal government’s moratorium on student loan repayment is expiring on August 31, 2022. As employees ramp up repayment on their student loan debt, now’s the time for brokers to talk to their clients about one of today’s most in-demand (but under-offered) benefits: student debt repayment.
Graduation season is upon us. As this year’s crop of graduating students leaves school and enters into the workplace, employers are reminded how many of their existing and potential employees are still repaying debt from their university years.
According to Education Data Initiative, student loan debt in the United States totals $1.747 trillion. The average debt balance per student is estimated to be as high as $40,904, a combination of public and private loan debt.
During the pandemic, the federal government stepped in to provide relief, delaying repayments for struggling borrowers under the Student Loan Payment & Interest Holiday. However, this pause on repayment is set to expire on August 31, 2022 and employees will once again be required to issue payments on outstanding loans.
HR experts are seeing a shift: What was once a “nice to have” perk takes on a new level of importance as tuition costs rise and employees are more in debt than in the past.
Right now is a great time for brokers to start talking to their small- and medium-sized business (SMB) clients about offering a student loan assistance program.
Employers must think holistically
Student debt plays a serious role in an individual’s overall financial outlook and behavior. Per a recent CNBC survey, 81% of people carrying student loan debt have had to push back life milestones, including buying homes, investing in the stock market, or setting aside funds for retirement.
As a broker, you can help employers evaluate their benefits packages holistically: What employee pain points do their benefits solve? How can the company help employees feel more empowered about their finances? How big of a role would student loan assistance play?
An opportunity to stand out
According to retail investing platform Betterment at Work, 86% of young workers say they would stay at least five years with a company if it helped with student loans. However, a mere 8% of employers offer this benefit.
While the appetite for this type of financial assistance exists, student debt repayment is still not part of most benefit packages. This offering creates an opportunity for SMB employers to stand out among larger companies in the competition for top talent.
For many employers, this will be a new offering. Brokers can help clients recognize how influential student loan repayment is among the rest of the components of their benefit packages. Employers with younger workforces are those most likely to see high adoption (and appreciation) of student loan assistance programs.
Take advantage of tax incentives
Shouldering the entire financial burden could be tough for businesses, especially SMBs with limited budgets. Luckily, Section 2206 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) created a temporary tax-free provision for employer-sponsored student loan assistance programs. Under the Consolidated Appropriations Act (CAA), this benefit has been extended through December 2025.
Here’s how the incentive works: employers may contribute up to $5,250 in student loan repayments per employee per year. Payments are tax-free, whether they are issued directly to the employee or the student loan servicer. The employee doesn’t pay tax on those funds and the employer receives a payroll tax exclusion. It’s a win/win.
Brokers can work with their clients’ CPA firms, other financial advisors, and the HR experts at a professional employer organization (PEO) to ensure the business receives the full tax advantage available under this program.
Benefit administration must be fair and compliant
As with all offerings, employers must make sure that the benefit is extended to all eligible employees and administered fairly.
Many SMB employers lack sufficient in-house HR staff to make sure each benefit complies with labor requirements in every jurisdiction where they employ staff. This “wait and see” approach can expose the employer to compliance issues down the line in the event an employee feels they have been treated unfairly.
Partner with HR experts
Today’s employees have many choices of workplace, so they are scrutinizing benefits more closely than ever. Partnering with a PEO company like ExtensisHR is one way an SMB can jump ahead of competitors in the war for talent. PEOs enable SMBs to offer tailored, Fortune 500-level benefits on par with bigger organizations. The HR experts at PEO companies pay close attention to emerging employee trends and the types of benefits influencing their choice of workplace.
In addition to taking the day-to-day HR administration burden off in-house staff, the employment specialists at PEO companies craft stand-out benefit packages that are always fully compliant with federal and state laws. Working with a PEO delivers peace of mind to employers and removes some of the administrative burdens from time-strapped brokers.
Student loan repayment assistance is one way SMB employers can show current and potential staff their needs are a priority. Either by encouraging SMBs to partner with a PEO company or developing a benefit in-house, now is the time for brokers to assist clients in creating a student loan repayment plan that helps employees pay down debt sooner.
Contact ExtensisHR today to see how our broker-centric model strengthens your relationship with your SMB clients and helps them become better employers.
