Will Student Loan Repayment, at Long Last, Be a Game-Changer?

The tight labor market could push more employers to repay education debt

By Joanne Sammer January 4, 2022
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Will Student Loan Repayment, at Long Last, Be a Game-Changer?

Want to catch the eye of job seekers? Consider offering cash to pay down employees' student loan debt.

Although the percentage of employers offering student loan repayment assistance doubled to 8 percent in 2020, according to the Society for Human Resource Management's (SHRM's) annual employee benefits survey, it remains an uncommon benefit despite its popularity among younger employees.

"Nearly every business relies on, and benefits from, the investment employees have made in higher education, whether that's through obtaining professional certifications or earning undergraduate and advanced degrees," said Jennifer Nuckles, executive vice president at San Francisco-based SoFi at Work, which provides student loan consolidation and refinancing services.

Nuckles views the approaching end of the pandemic moratorium on student loan payments as a "call to action" for employers to help their workers get ready to restart their loan payments. President Joe Biden recently extended the end of the moratorium to May 1, 2022.

Also as part of pandemic relief, employers can provide up to $5,250 in student loan repayment benefits tax-free through 2025 (see box, below). Many employers that had been waiting and evaluating a loan repayment benefit have now moved forward and begun offering it, or are ready to do so, because of its tax-free status, said Greg Poulin, CEO of student loan benefit provider Goodly, headquartered in San Francisco. 

"Without taxes, the value to employees is so much higher," he noted.

To reinforce the value of this benefit to job seekers, Goodly has set up a searchable database that job seekers can use to identify employers that provide student loan benefits to their employees.

A Key Differentiator

Some employers say adding this benefit provides an important opportunity to differentiate themselves. Standing out is viewed as particularly important in a health care industry that has seen high levels of burnout and turnover during the COVID-19 pandemic. This was the case for McLaren Flint Hospital in Flint, Mich., which has been facing staffing shortages and low retention rates.

As staffing issues escalated, the hospital enriched existing benefits and added sign-on bonuses "without getting a return," said Chris Candela, president and CEO. "We needed a game-changer."

When someone suggested offering a student loan repayment program, Candela immediately saw the potential. With no one else in its labor market offering this benefit, the idea gained support from the hospital's board of directors and foundation. "Speed to market was important," he said, because the job market "is so competitive right now."

McLaren Flint Hospital's program provides $200 per month in student loan repayments during the first year after an employee signs up, rising to $300 per month the second year and $450 per month in the third year. The program has a $15,000 cap on these benefits. "The longer you stay, the more you get," Candela explained.

The initial goal was to enroll 100 people for student loan repayment assistance and to retain those employees as long as possible. However, when the hospital announced the new benefit in December 2021, 172 of the hospital's 1,100 employees signed up on the first day. These employees hold a wide range of jobs that can be difficult to keep filled, such as nurses, physicians, respiratory therapists and technical pharmacists.

"If we can help take something off our employees' plate, we can help reduce their stress and anxiety instead of just throwing them more money on a per-hour basis," Candela said.

A Tax-Excluded Benefit, for Now

Legislation signed into law at the close of 2020 extended for five years COVID-19 relief that allows employer-provided student loan repayment as a tax-free benefit to employees under Section 127 of the Internal Revenue Code. Through 2025, employers can continue to make contributions of up to $5,250 per employee annually toward student loan assistance without raising the employee's gross taxable income.

SHRM supports permanently expanding the tax exclusion for employer-provided education assistance to include student loan repayment. "SHRM has long championed policies that allow employers to offer education assistance programs relevant to the modern workforce," said James Redstone, director of public policy at SHRM. "Greater certainty regarding the tax treatment of education assistance is an important step in expanding the availability of such benefits."

Design Decisions

When developing a student loan repayment benefit, employers have several important decisions to make. "No matter what your budget, roll it out as a pilot program" to gauge impact and interest and to determine how much it is likely to cost, suggested Amanda Hahnel, head of student debt retirement at Fidelity Investments in Boston.

Employers should consider the following benefit design questions:

When can employees enroll?

Determine whether employees can enroll in the program immediately upon hire or after a certain waiting period. This decision will depend on budget considerations and the level of short-term turnover.

Finding the right time for enrollment could require some trial and error. If immediate enrollment does not curb short-term turnover, an employer has the option of imposing a waiting period of a few weeks or months or even a year to avoid spending on employees who are not committed to staying with the organization.

Who will be eligible?

If employers are concerned about costs, they can narrow participation in several ways. For example, some parents take out student loans to pay for their children's education, so employers need to decide whether those loans will be eligible for the repayment benefit.

In some cases, employers may want to target this benefit to the employees in most need of it. This could be accomplished by limiting participation to employees in certain jobs, such as those below the director level, Hahnel suggested.

How often will employees receive these benefits?

Employers that need to retain workers through busy seasonal periods could consider making a lump sum payment once the busy period is over. Others might want to spread out repayment benefits throughout the year by applying monthly amounts to employee student loan repayments.

How much assistance will they receive?

The ultimate amount of student loan repayment benefits will largely depend on the employer's budget and how many employees take advantage of the benefit. If employers want to offer the full amount of available tax-free student loan repayment benefits, they can cap these payouts at $5,250 a year or $437.50 per month. However, smaller amounts of $50 or $100 per month can also make an impact.

Some employers impose a lifetime cap on these benefits. For example, Fidelity Investments recently increased the maximum benefit each of its employees is eligible for from $10,000 to $15,000.

Measuring the Impact

The best way to gauge the impact of student loan repayment benefits is to measure retention among enrolled employees and the time it takes to fill positions that are eligible for this benefit.

Fidelity Investments found that attrition rates among employees participating in its program are 75 percent lower than for its employee population at large. Among new hires, half said that the student loan repayment benefit was a major factor in their decision to join the company.

Among program participants, employee engagement with the organization "is also definitely higher," Hahnel said.

Joanne Sammer is a New Jersey-based business and financial writer. 

Related SHRM Article:

Consider the Benefits of Student Debt Repayment Plans, SHRM Online, September 2021


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