Reaping the Rewards of Student Loan Debt Repayment Programs
Workspan Daily
September 07, 2023
Key Takeaways

  • Pause on student loans is ending. Student loan payments resume Oct. 1, which is likely to increase stress among millions of U.S. employees carrying sizable debt.  
  • Few employers offer repayment assistance. While this benefit offering has increased significantly since 2016 (4%), just 13% of organizations offered student loan debt repayment assistance as of 2022.  
  • A competitive advantage. Experts note that employers offering student loan repayment assistance in some form could reap the benefits in attraction and retention of employees and see higher levels of well-being in their organization.  
  • One key hesitation. Some of these programs are not tax favored, meaning the recipients of student-loan repayment benefits have to pay income tax on the sums received and the employer could not deduct them as a business expense. That has made some employers reluctant to establish such arrangements. 

Student loan payments are set to resume Oct. 1, which will likely have a negative impact on millions of U.S. employees’ financial well-being after three years of pandemic-related respite from payments. 

In recent years, 70% of college graduates began their post-college career encumbered by an average of $37,175 in student debt, according to recent research by John G. Kilgour, a professor emeritus in the Department of Management at California State University, East Bay, published in The Journal of Total Rewards.  

But it’s not just a new-hire issue: Workers ages 25-34 still owed $479.9 billion and an average debt of $33,559, and borrowers ages 35-49 owed $489.4 billion for an average debt of $48,941. 

Couple that with the grim news that credit card debt topped $1 trillion in the U.S. for the first time ever, and it’s no surprise that more than half (57%) of full-time U.S. employees said finances are the top cause of stress in their lives, per a 2023 survey from PwC

To help combat the effects of employees’ financial stress — such as increased workplace accidents and more sick days used — employers are increasingly turning to new methods of loan-repayment programs. 

Benefits of Programs 

WorldatWork’s "2022 Total Rewards Inventory Programs and Practices" survey found that 13% of organizations offered student loan debt repayment assistance last year, a significant increase from the 4% that offered it in 2017. 

HR leaders are beginning to recognize the recruiting advantages of financial well-being benefits like this, said Barrett Scruggs, vice president at SoFi at Work, a financial well-being benefits platform. 

Webinar: Entering Indebted: Addressing the Student Debt Crisis to Improve Employees' Financial Wellness

He cited new internal research that found 81% of employers believe employees are more likely to take a job with a company that offers well-being benefits such as student loan debt repayment, and 74% recognize that these options are a top priority for today’s workers. 

Full-time job listings that mention student debt repayment programs have doubled since 2019, he added.  

“Employees have come to expect common workplace benefits like 401(k) matching and insurance to help mitigate healthcare costs,” Scruggs said. “While these perks are valuable and shouldn’t be overlooked, student loan debt assistance and repayment offerings are growing popular as additional ways to support the financial well-being of employees.” 

Student loan reimbursement programs can also improve workplace fulfillment, productivity and retention, Scruggs said. “In fact, 86% of employees said financial well-being benefits positively impacted their desire to stay with their employer.” 

Options Expand 

Organizations have been offering their employees student loan repayment benefits since approximately 2015. Examples of leading organizations that have adopted such programs include Aetna, which gives $2,000 per year up to $10,000 total, and Fidelity Investments, which offers $2,000 per year for up to five years.  

Even the U.S. government offers workers a loan-repayment program of up to $10,000 per year to a maximum of $60,000 (though it varies by agency and applies only to federal student loans). 

These programs often consist of one or more of the following features to help promote financial well-being through student loan optimization: employer-paid student loan repayment, SECURE 2.0 matching student loan payments, guidance, education, tools, and/or refinancing options, according to Sara Vipond, wealth research consultant at Mercer. 

“Some employers, especially in the healthcare space, are beginning to offer employer-paid student loan repayment programs,” she said, “where the employer directly contributes to paying down an employee’s student loan debt.”  

Other employers have begun to “tier” the level of repayment in order to impact the retention of current employees, she said. 

“For example, the employer may contribute $100 per month to the employee’s student loan for the first year of employment, then increase it to $200 per month after the first year of employment.” 

Meanwhile, the new SECURE 2.0 provision will allow employers to contribute to an employee’s retirement savings account while also matching student loan payments.  

“This helps employees save for retirement while paying off student debt, rather than choosing one or the other,” said Scruggs.  

Scruggs said he’s seen increased adoption specifically in the legal and healthcare sectors, where young professionals take on significant amounts of debt — generally seven times as much as the average college student.  

“Paying back loans is difficult when starting a career in these high-stress fields, especially within the first few years,” he said.  

Student loan repayment benefits can also be beneficial for companies in competitive industries struggling to attract and retain hourly employees, he said, including retail and customer service.  

A fair warning: Some of these programs are not tax favored, meaning the recipients of student-loan repayment benefits must pay income tax on the sums received and the employer can’t deduct them as a business expense. That has made some employers reluctant to establish such arrangements. 

Employers including Amazon and  SoFi have tried to help eliminate the problem of creating more college-loan debt by also offering tuition reimbursement for continuing education expenses.  

“This prevents employees from taking out larger loans,” Scruggs said, “and helps them succeed with new skills in the workplace.” 

Regardless of the method offered, Cal State’s Kilgour thinks it’s likely that many employers, especially large high-tech employers, will sponsor student loan repayment programs to attract and retain high-quality employees.  

“Those employers who do not will be at a competitive disadvantage in the labor market,” he wrote.  

Editor’s Note: Additional Content 

For more information and resources related to this article see the pages below, which offer quick access to all WorldatWork content on these topics: 

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