In a tight labor market, where competition for workers is fierce, companies are trying to attract and retain employees by offering to pay their student loans.
Inova Health and other companies help workers repay student loans
“We know our team members have a lot of choices about where they work, where they want their careers to go,” said Wendy Jolly, Inova’s vice president of human resources. “We want them to feel like they have a competitive set of compensation and benefits packages that live up to the excellence that we expect.”
Employers are responding to young workers’ call for help with student debt and taking advantage of new tax relief born out of the pandemic. Still, there are more companies considering the benefit than implementing it, a reluctance that experts say is rooted in uncertainty over federal debt cancellation and repayment policies. .
Would you like your employer to help you with your student loans? A proposed tax break might do the trick.
Before the pandemic, student loan repayment benefits were becoming one of the most popular perks in corporate America. The percentage of employers offering student loan repayment assistance doubled to 8% between 2016 and 2019, according to the Society for Human Resource Management.
A 2021 survey by the Employee Benefits Research Institute found priorities shifted in the wake of covid-19 as employers sought to offer workers immediate financial relief in the form of short-term loans or emergency aid. Craig Copeland, a senior research associate at the Institute, said the two-year pause on federal student loan payments has also put employer-sponsored programs on the back burner.
Companies are re-examining the benefit as the economy rebounds, demand for workers intensifies and job seekers become more selective.
Nearly half of the 250 large employers — those with more than 500 employees — surveyed by the Institute in 2021 offer or plan to offer student loan assistance as a benefit, up from 32% in 2018. Meanwhile, a third of 238 employers surveyed by consulting firm Willis Towers Watson said in 2021 it would offer direct student loan repayment.
In March, Inova rolled out its student loan assistance program to more than 20,000 employees at five hospitals and a network of healthcare facilities in Northern Virginia. So far, 1,600 workers have signed up, or about one in 10 employees, Jolly said.
The benefit is available to all employees and has a maximum of $10,000.
Inova partners with Edcor Data Services LLC, an educational assistance company, to administer the program. Employees provide their loan information to Edcor, which passes payments from Inova to the student loan manager.
A little-noticed provision of the 2020 Coronavirus Aid, Relief and Economic Security Act, or Care Act, has also made it cheaper for businesses to help employees repay student loans. Companies can provide employees with up to $5,250 a year to pay off their debt without the contributions being taxed. Employees are also spared from being taxed on the money.
Before the tax break, if a company had paid $5,250 in student loan repayments, it would have cost the employer and employee about $400 in payroll taxes, according to accounting firm Insogna CPA. An employee subject to a federal income tax rate of 22.6% should pay about $1,190 in federal income tax.
Companies that provide end-to-end support for student loan assistance programs are reporting an increase in companies setting aside more money for the benefit as a result of the tax relief.
Sofi at Work, which helps companies with employee benefits, saw an increase of more than 30 percent of contributions to loan repayment programs from the first quarter of 2020 to the first quarter of 2021. The number of payments made by employers more than doubled in the same period, said Barrett Scruggs, vice president of wellbeing finance, workforce and business lead at Sofi at Work.
After the tax change, Fidelity Investments increased the maximum benefit it offers employees to help pay off student debt to $15,000 from $10,000. Google launched a program in January that matches up to $2,500 in student loan payments per year for its employees.
The tax relief is comparable to existing tax benefits for tuition reimbursement, but it is only valid until 2025. And this sunset has some companies thinking about creating an aid program to student loans, Copeland said. Congress can extend the tax relief or make it permanent before it expires, but it’s unclear whether that will happen.
Copeland said companies are also waiting to see if the Senate will approve legislation allowing employers to match their loan repayments with retirement account contributions. The House passed the bill in March.
“There still isn’t a lot of certainty around the upside,” Copeland said. “Clarity on tax issues, a decision on canceling Biden administration debt and restarting repayment… will transform these maybes [from companies] yes, we offer this benefit.