Student Loan Assistance Benefits See Little Growth, but Need Is Real

Adoption rate of loan repayment benefits still low, despite much attention

By Stephen Miller, CEBS Jun 14, 2017
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Although employers that help repay their workers' student loans report that it boosts morale and productivity—and that this aid is especially valued by Millennials—only 4 percent of Society for Human Resource Management (SHRM) members say that their organizations offered this benefit in 2017, the same percentage that provided this assistance a year earlier and just one percentage point more than offered it in 2015.

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The SHRM 2017 Employee Benefits survey report will be released June 19. The findings are based on a January/February poll of randomly selected SHRM members, with 3,227 HR professionals responding.

"Sometimes when big companies offer certain benefits, it gets a lot of media coverage, but that doesn't mean it's actually changing in overall prevalence," said SHRM researcher Tanya Mulvey, the survey project leader.

"Employer-provided loan repayment assistance is still relatively new and it can be a high-cost benefit for employers," said Evren Esen, SHRM's director of workforce analytics. However, "it is especially attractive to younger workers with highly valued skills." Over time, she believes, "this benefit could see future growth."

There are 44 million Americans with student loan debt, bringing the total U.S. student debt burden to more than $1.3 trillion, the federal government estimates. "Early evidence has shown that employer repayment assistance can reduce the time needed to retire an average student loan balance by four years," noted Scott Thompson, CEO of Tuition.io, a student loan contribution platform.

Mostly a Mega-Corporation Benefit?

A January 2017 survey report by WorldatWork, an organization of total rewards professionals, also showed that 4 percent of employers overall provided a loan-repayment benefit but that the largest of the corporate giants were the most likely to do so.

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The WorldatWork survey was conducted in August 2016 with 730 responses from total rewards professionals, predominantly at large North American firms.

Tax Hurdle

An obstacle to providing student loan repayment assistance is that, at present, employers can't claim a deduction for these payments, which also are taxable income for the recipients.

"For employers considering a student loan repayment benefit option, they will need to remember that this is considered taxable income to the employee, unlike the familiar tuition reimbursement that provides employers with a deduction up to $5,250 paid on behalf of the employee," advised Bobbi Kloss, HR director at Benefit Advisors Network (BAN), a consortium of health and welfare benefit brokers across the U.S.

Proposed legislation now before Congress would allow employers to provide loan repayment assistance with pretax dollars. SHRM supports the bipartisan Employer Participation in Student Loan Assistance Act (H.R. 795), which would amend Section 127 of the Internal Revenue Code, introduced Feb. 1 in the House with 23 co-sponsors.

[SHRM members-only toolkit: Designing and Managing Educational Assistance Programs]

Aiding Recruitment

Loan-repayment aid seems most likely to be offered by businesses facing difficulty in recruiting employees with in-demand skills, whether that be nurses, financial analysts or software designers, and by those that want to differentiate themselves as attractive to recent graduates and younger workers. "This may be a benefit that certain organizations are using if they are having a difficult time recruiting certain types of talent, for whom this would be a lucrative benefit," Mulvey said.

For the class of 2017, "nearly 70 percent of college graduates will be strapped with student loan debt, with the average undergraduate student facing $30,100 in loans," said Tim DeMello, CEO of Gradifi, an employee-benefit student loan repayment platform. "This generation is made up of tech-savvy and hard-working people who want to work for companies that are passionate about what they do, and who also care about their employees."

Millennials and Others

Older workers also are financially overstretched by student debt, shows a recent survey of 909 people 35 and older who have a student loan. According to the survey by IonTuition, a firm that helps borrowers manage these loans:

  • Over 37 percent of respondents had fallen behind on their student loan payments.

  • 43 percent reported being unable to prepare properly for retirement due to their student loans,

  • 36 percent would prefer student loan repayment benefits, such as contribution matching or automatic payroll deductions, over a 401(k).

  • 29 percent would prefer student loan repayment benefits over health benefits.

"The impact of student loan debt on Millennials is widely discussed, but we were interested in exploring how student loan debt affects the financial wellness of older generations," said IonTuition CEO Balaji Rajan. "Businesses have a unique opportunity to help workers of all ages."

Respondents taking out or cosigning student loans for others are also struggling. "Nearly half of Gen Xers and Baby Boomers who cosigned for loans are concerned that the borrower may not pay back their loans," he added.

Tuition Assistance Dips

While SHRM found that more employers are providing financial advice, training and tools to employees, direct financial assistance with graduate and post-graduate education has declined. 

Educational Assistance Benefits

 


2013

2015

2017

Undergraduate educational assistance

61%

56%

53%

Graduate educational assistance

59%

52%

50%

529 plan payroll deduction

14%

11%

11%

Educational scholarships for members of employees' families

--

11%

11%

Employer-provided student loan repayment

--

3%

4%

Employer contribution or match for 529 plan

--

--

2%

Source: Society for Human Resource Management, 2017 Employee Benefits report.

 


Organizations that decreased their benefits offerings in the past 12 months most commonly did so to remain financially stable when facing rising costs of benefits, economic pressures or poor organizational performance, SHRM's report noted.

However, given the employee skills gap confronting employers, seeking to cut costs by reducing educational benefits may be short sighted and even counterproductive. "Investing in employees' tuition isn't a benefit cost but rather a valuable investment that positively impacts organizations' bottom line," said Jamie Merisotis, president and CEO of Lumina Foundation, a nonprofit that focuses on increasing the share of Americans with degrees, certificates and other credentials.

The foundation partnered on a recent study of health insurer Cigna's education reimbursement program that showed each dollar the company spent on tuition assistance generated an additional $1.29 in savings—a 129 percent return on investment—due to reduced turnover and lower hiring costs.

Related SHRM Article:

Employers Sharply Increased Financial Well-Being Benefits in 2017, SHRM Online Benefits, June 2017

Bill Seeks to Allow Tax-Free Student Loan Repayments by Employers, SHRM Online Employment Law, February 2017

Student Loan Aid Helps Employers Attract Millennials, SHRM Online Talent Acquisition, April 2016

Was this article useful? SHRM offers thousands of tools, templates and other exclusive member benefits, including compliance updates, sample policies, HR expert advice, education discounts, a growing online member community and much more. Join/Renew Now and let SHRM help you work smarter.


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