Employees are the heart of any great business. That’s why this week, we’re covering the hottest employee benefit of the year: employer student loan assistance. Less than 4% of employers currently offer it, but that number is projected to grow as job markets heat up and employers compete for talent.
Employer student loan assistance is a major selling point for employees.
As part of a benefits package, employer student loan assistance helps workers make payments toward their student loans. There’s no standard set of rules but, generally, both parties agree on a specific amount to be paid toward the worker’s student debt for a certain amount of time. For example, the company will pay $500 per year for 3 years. Employers can either pay the student loan servicer directly or distribute the funds to the employee to do so.
The incentive for employers to offer the program is to attract and retain employees. It works, in fact, more than half of millennial workers indicate student loan assistance is important to them. According to the same study, 4 out of 5 young workers would commit to an employer for 5 years if they helped pay their student loans. Employer student loan assistance also boosts employee loyalty and morale, which reduces future hiring and training costs. Companies leading the charge include Staples, Chegg, ChowNow, Kronos and Fidelity Investments.
Here’s the difference between student loan assistance and tuition reimbursement.
Tuition reimbursement benefits employees currently attending college classes. In other works, you can get a degree and have your company pay some or all of the tab. Student loan assistance, on the other hand, is for students who have already graduated and are in repayment. For either program, employees typically have to work at the company for a set period of time before qualifying.
Another major difference in the programs is their tax status. While up to $5,250 per year can be provided to an employee tax-free for tuition reimbursement, most student loan assistance programs are taxable to the employee. If your employer offers it, it’s important to know whether that tax is deducted from your paycheck or if you’ll need to file it with your tax return each year.
Does your employer provide it? Maximize your benefit!
While student loan assistance isn’t as common as 401(k) benefits, if your company offers it be sure to make the most of it. Just like a 401(k), this is money left sitting on the table if you don’t use it.
- Pay high-interest loans first. Also known as a debt avalanche, it’s usually in your best interest to pay off the higher rate loans so you pay less in interest over the life of your loans.
- Consider employer payments “extra”. Continue making your monthly payments as if you weren’t getting the assistance from your employer, their payments are icing on the cake and will help you reduce the overall cost of the loan, if you use the tip below.
- Provide specific instructions. Be sure your loan servicer knows how to handle the payments. Some lenders count extra payments as “paid ahead” so you’ll need to specify if you’d like the payment to go toward the principal instead. Tip: Navient (for federal loans) lets you select either option from the menu when you make the additional payment online.
- Utilize Public Service Loan Forgiveness. If you qualify, you should, again, check that your loan servicer applies the extra payments from your employer toward the principal balance. Payments made while borrowers are in “paid ahead” status do not count as qualifying payments for public service loan forgiveness.
We recommend consulting your plan administrator or a financial advisor to determine the best option for you. If your employer doesn’t offer the program, consider consolidating your loans with iHELP for a lower monthly payment and your choice of flexible repayment options.