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The Pros and Cons of Employer Plans to Help with College Tuition and Student Loan Debt

​Jeff Oldham is senior vice president for BenefitsPlace Distribution at Benefitfocus, a cloud-based benefits management platform firm based in Charleston, S.C. Oldham described what he considers the pros and cons of various employer programs that help workers pay college tuition and manage college debt.

Tax-Free Education Assistance

Pros: An employer can choose to reimburse employees for taking classes, buying books and other expenses associated with education, and sometimes the education doesn't have to correspond with the employee's job or be work-related. So if I'm an employee in a job that isn't my long-term goal, or I'm interested in switching career paths, I could use this benefit to advance my education in non-industry-related fields on my own time.

Cons: For this benefit, employees are truly on their own when it comes to reimbursement. They must maintain receipts and other documentation and submit them for reimbursement, which can be administratively arduous.

Trading PTO for Student Loan Relief

Pros: For employees, this is a terrific benefit. The sad fact is that the majority of U.S. workers do not utilize their PTO (paid time off). This benefit gives them an opportunity to convert PTO days so that time isn't left on the books. To do the rough math, if an employee made an average of $50,000 a year, or about $24 an hour, two weeks of PTO would equate to almost $2,000 before taxes. This is a meaningful amount, and I've seen this benefit as a great recruiting mechanism for employers.  

Cons: An employee who doesn't take PTO can burn out. I've also seen employers lose money with this benefit if there isn't a cap placed on the amount of PTO that could be converted. For example, if every employee converted 100 percent of his or her PTO balance to student loan relief each calendar year, they would be losing out on valuable PTO time, and the employer would be losing money.

Tuition Reimbursement

Pros: The biggest pro is the tax advantage for employers, up to $5,250 per year for each employee, and the benefit is not taxable to employees.

Cons: For an employee, this benefit requires a longer commitment and has low adoption. It typically requires a waiting period after the education is completed, and an employee stays at a company for one to two years before being reimbursed. Employers offering both tuition reimbursement and student loan contributions have to ensure employees don't take advantage of both, and this can cause some administrative burden.

Contributions to 401(k) Plans

Last year, Abbott Laboratories launched a program to aid employees who contribute at least 2 percent of their pay to their student loans through payroll deduction. These employees can receive an amount equivalent to the company's 401(k) match—5 percent of the employee's compensation—deposited to their 401(k) accounts, even if they don't otherwise contribute to their 401(k).

Pros: If a qualifying employee puts 2 percent of his or her pay toward student loan repayment, Abbott puts the equivalent of the company's 5 percent match into the worker's 401(k) without requiring the worker to make any 401(k) contributions. The pro of this approach is that Abbott was able to recruit and retain employees.

Cons: There are financial articles I've read noting that when companies move employees' 401(k) contributions to student loans, the employees miss out on the compounding interest they might have earned by contributing their own money to the 401(k) plans.


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