Student Loan Repayment Benefits: A Win-Win for Employers and Employees
The burden of student loan debt presents a significant financial challenge for millions of Americans.
Student loan debt disproportionately affects people of color and women and contributes to wealth gaps. On average, African American student borrowers owe $25,000 more than white student borrowers, and women take on two-thirds of student debt. The impact of student loan debt is compounded by pay gaps for women and people of color.
Student loan debt has reached staggering levels in the United States and creates significant financial strain for millions of individuals.
The total amount owed by borrowers currently stands at $1.5 trillion. The cost of college has increased steadily over the past several decades. More than half of students leave college with debt, and average student loan debt has doubled since 2007. The average amount of student loan debt is over $40,000, with an average monthly payment of over $500. This financial burden can hinder the ability to purchase homes, start families, and save for retirement. The impact on low-income workers is particularly severe, as a larger portion of their income is consumed by loan payments, leaving less for essential living expenses.
The Public Service Loan Forgiveness program provides student debt forgiveness for eligible employees of the federal government or nonprofit organizations.
The program is designed to encourage and reward public service by reducing the financial burden of student loan debt. Eligible borrowers who make 120 qualifying monthly payments on their federal student loans while working full-time for a qualifying employer can have the remaining balance of their loans forgiven. Recent efforts to expand access to student debt cancellation programs have lowered education debt for millions of Americans, but these efforts are the subject of ongoing litigation.
Recognizing the financial impact of student loan debt, private employers are increasingly offering student loan repayment programs as a benefit for employees.
By providing student loan repayment assistance, employers can help employees to build financial stability and advance in their careers. These benefits can encourage individuals to invest in their future by pursuing higher education without fearing detrimental financial consequences.
Student loan repayment benefits also can make a company more attractive to diverse candidates, especially for individuals saddled with significant educational debt. This benefit also promotes retention of valuable employees, particularly those who may be more likely to leave a job due to financial constraints.
Increasingly, private employers offer student loan repayment assistance as a benefit, in part to gain a competitive edge in recruitment and retention.
About a third of employers offer student loan repayment benefits. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) established new tax breaks for employers to offer loan repayment assistance, which have been extended through at least 2025. Prior to the CARES Act, employer student loan assistance was treated as wages. The Act now allows employers to provide up to $5,250 in tax-free student loan payments on behalf of their employees every year, and that money is exempt from taxes for both the employer and the employee. These programs indicate growing recognition of the impact of student loan debt on employees and the potential benefits for employers of offering repayment assistance.
Employer-sponsored student loan repayment programs offer several advantages for both workers and employers.
By helping employees manage their debt, employers can boost morale, reduce turnover, and create a more positive work environment. Offering this benefit can help to attract and retain top talent. Reducing financial stress can lead to increased focus and productivity. And companies that prioritize employee well-being and financial security can build a strong employer brand and reputation.
Student loan repayment programs also offer obvious benefits for employees. By shortening the time required to pay down loans, these programs can drastically reduce the amount of compounded interest owed. For example, clients participating in Fidelity’s Student Debt program have paid $200 million in student loan payments resulting in over $325 million in lifetime savings for employees. Fidelity reports a 26% reduction in employee turnover among employees enrolled in the benefit. Fidelity also reports that 50% of new hires with student debt said the repayment program was a major factor in their decision to join the company.
Employers take various approaches to structuring student loan repayment programs.
The programs can offer direct contributions to loan balances at set levels, matching employee contributions, or stipends for loan repayment. Employers must determine eligibility criteria, benefit levels, and related policies and processes. In weighing options, employers should consider the questions below.
What is the monthly or annual contribution?
Employers often offer a certain amount per month or year, typically in the range of $100 to $200 per month, or up to $500 per month. A review of programs reveals the following low, mid, to high ranges for typical employer contributions and caps on benefits.
| Typical Benefit Levels | Lower Tier | Mid Tier | Higher Tier |
| Monthly Contribution | $100 | $170 to $200 | $500 |
| Yearly Contribution | $1,200 | $2,500 to $6,000 | $10,000 |
| Cap on Benefits Term | 3 years | 5 to 7.5 years | full loan repayment |
| Cap on Total Benefits | $6,000 | $9,000 to $60,000 | full loan repayment |
What is the lifetime term of payments or ceiling on the total amount of assistance?
Some employers set a lifetime ceiling of a certain number of years of payments or a total amount of benefits, while other employers offer loan repayment until the loan is paid in full.
Will all employees with student debt be eligible to receive contributions?
Some employers provide standard benefits for all employees, while other employers set a threshold of hours per week for eligibility (e.g., 20 hours per week) or elect to provide greater benefits for full-time employees and lower contributions for part-time workers.
Will all employees receive the same contribution?
Recognizing the challenges for lower income workers, some employers provide greater benefits for their lower paid employees. Employers can elect to provide payments on a sliding scale by providing greater assistance for lower paid employees or employees with greater levels of debt. Some employers contribute a percentage to the principal of the loan up to a certain limit. Employers may set different thresholds for undergraduate and graduate degree loans.
Will the program offer contributions toward loans as a monthly stipend, hiring bonus, or reward associated with tenure?
Some employers offer contributions toward student loans at the time of hire to incentivize recruitment. Some employers seek to incentivize retention by offering a bonus toward student loan payments after a certain period of tenure with the organization or by increasing the amount of the benefit over time.
What is the employer’s total budget for this benefit?
Employers must assess the annual budget for these benefits and the annual cost associated with different options to ensure feasibility over time.
Can the employer also offer scholarship programs and/or tuition assistance for employees who are currently in school?
Some employers also address student loan needs through scholarship programs and tuition assistance programs for employees who are also in school. For tuition assistance programs, some employers specify that courses must be approved for reimbursement.
Student loan repayment programs are emerging as a critical employee benefit.
By helping employees manage their debt, employers can improve morale, attract and retain talent, and enhance overall organizational performance.
Implementing a successful student loan repayment program requires careful planning and execution. Working IDEAL can partner with organizations to successfully implement these programs and support employers throughout the process, including to assess eligibility and program design, communicate benefits to employees, manage program administration, and measure the impact of the program. Let’s connect.
