Is It Fair for Employers to Offer Student Loan Repayment as a Benefit?

Two experts debate the issue.

June 1, 2022 | Mary Moreland and Lisa Porro, SHRM-CP

Providing student loan relief helps companies attract and retain employees.

Our benefits approach at Abbott focuses on supporting employees at all ages and stages of their careers. We recognize that people from diverse backgrounds face different challenges as they complete their degrees and join the workforce.

This is one reason we decided to address the U.S. student debt crisis in 2018, after employees started telling us it was difficult to both pay back their educational loans and save for retirement. Four years later, our first-of-its-kind Freedom 2 Save program has become a recruitment and retention tool, helping more than 1,900 Abbott employees secure brighter financial futures.

The program is an example of the good that can come when employers step up to support employees who carry student loan debt.

In a September survey from investment firm Betterment, 35 percent of the 1,000 full-time U.S. employees who responded said they prioritize paying their student loans more now than they did pre-pandemic. We’ve seen the same from our employees: Average monthly enrollments in Freedom 2 Save increased 50 percent from 2019 to 2021.

The effect of student loan debt on U.S. workers is impossible for employers to ignore. The Federal Reserve estimates that 30 percent of all adults, which is roughly 4 in 10 people who went to college, collectively owe more than $1.7 trillion in student loans. That represents a sizable percentage of the workforce that employers are recruiting from amid the current tight job market.

Findings from an October survey by the Employee Benefit Research Institute show that 17 percent of employers currently offer student loan debt assistance and another 31 percent plan to do so.

This critical help doesn’t have to come only in the form of loan repayments, which are popular with employees but can polarize colleagues who have no educational debt or who have already paid back their student loans. Employers have additional tools, such as offering student loan payment counseling and third-party low-interest or interest-free educational loans along with debt consolidation and refinancing services.

Employers also can follow our model and promote retirement savings while freeing up money for employees to use to pay back their student loans faster. With Freedom 2 Save, Abbott makes a 5 percent contribution to employees’ retirement accounts when they put the 2 percent of their eligible income that would have gone to qualify for their 401(k) match toward their student loans.

With this strategy, we offer participating employees a 401(k) contribution just as we do for all our employees. The only difference is we’re giving them the freedom to redirect the 2 percent 401(k) contribution needed for their 5 percent match to their educational debt.

Freedom 2 Save has given us a competitive edge in recruiting and retaining the best and brightest workers—and it is key to supporting diverse talent. Young Black and Hispanic borrowers in 2020 were more likely than white borrowers to still be paying back student loans or to have fallen behind in payments, federal data shows.

We’re already seeing success stories, such as 27-year-old clinical specialist Leahannah Taylor, who graduated in 2019 with nearly $60,000 in debt accrued while earning her biomedical sciences degrees. She enrolled in Freedom 2 Save and aggressively paid off her loans.

As a result, she is now debt-free and was able to start her retirement savings early. She says Freedom 2 Save tipped the scales for her in deciding to take a position with Abbott.

About 46 million Americans have student loan debt just like Leahannah once did.

Imagine how many success stories like hers would be possible if more employers offered programs to address the country’s educational debt crisis.

Mary Moreland is executive vice president of human resources at Abbott, a global health care technology company based in the Chicago area.

Student loan repayment benefits can harm worker morale.

Lisa Porro, SHRM-CP
Employers can offer employees up to $5,250 annually in student loan repayment benefits tax-free through 2025. That provision was included in pandemic relief legislation enacted in 2020.

This tax benefit has encouraged some companies to offer student loan repayment as a recruiting and retention tool to help combat the increase in workforce turnover.

While a student loan repayment plan would help a certain segment of the workforce—those with outstanding student loans—it could also generate resentment among those who aren’t eligible for the benefit. Ultimately, the offering could divide the workforce and create morale problems.

Who doesn’t benefit? Workers in jobs that don’t require a college degree won’t be helped. Additionally, not all workers are able to attend college before starting their careers; some achieve success through experience and industry knowledge. There also may be generational or cultural reasons why college simply wasn’t an option for some employees.

For those who did go to college, did they (or their parents) scrimp and save to pay for their college tuition in full?

Did the employees work to pay off their loans prior to starting with a company that offers repayment? If so, they might resent the advantage given to those who didn’t repay their loans earlier.

Student loan repayment programs might also invite legal challenges, particularly if they favor highly paid employees.

In addition, what is the demographic of those who could take advantage of this benefit? Would older workers be eligible? Would only those employees in positions that require degrees be considered, or would anyone with student loan debt be part of the eligible participant pool?

If employers are concerned about workers’ financial wellness and mental health due to stress from carrying too much debt, why stop at student loans? Half of all U.S. residents carry medical debt, according to debt.com, a consumer financial education company. Debt collectors hold $140 billion in medical debt, not including bills that were paid via credit cards, according to a recent study published in the Journal of the American Medical Association.

These types of expenses, whether planned or unplanned, can surpass many employees’ means, even with insurance. Employees also may carry debt from paying to care for children with special needs or elderly parents. They may have mortgage rates or property taxes that outpace earnings due to recessions, layoffs or other catastrophic life events. Would employees find college debt repayment fair if they were weighed down by other types of debt with equally negative consequences but received no work-sponsored relief?

Student loan repayment programs aren’t cheap without tax-preferred status, which may not be extended after 2025. If companies have limited resources, should a large portion of a company’s future budget go toward a benefit that helps only a few workers? Furthermore, employees who still have active loans after 2025 may feel overlooked.

Ideally, benefits should be available to all employees, regardless of position, background or career path. Paid holidays, additional vacation time, flexible schedules, medical leave and paid days off for volunteering are benefits that all employees can use. Tuition reimbursement for a certification or degree that furthers a career path could help any employee who has an interest.

While student loans are, to be sure, a debt that can be debilitating to many employees, offering repayment for that type of debt without an equitable benefit for others isn’t a balanced approach. Not only could it be seen as unfair to the workforce as a whole, it could also be demoralizing enough for those employees who aren’t eligible to seek employment elsewhere.

Lisa Porro, SHRM-CP, is an HR consultant at Inspiring HR LLC, which is based in Chester, Va. She works remotely from Carlsbad, Calif.