Employers looking to remain competitive in the talent marketplace must stay abreast of the latest trends in salary and benefit offerings. Doing so will help to attract and retain talent in the coming years.
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One trend that may be gaining momentum is to offer student loan payment matching. Much like an employer match on a 401(k), a student loan payment matching program typically offers employees the opportunity to have the employer make matching contributions to their student loan payment up to a set maximum per year. Unlike a 401(k) program, however, student loan repayment matching often has a time limit or maximum total contribution as well, such as 5 years, or a maximum payout cap per employee, or both.
Here are some considerations for employers thinking of offering this benefit in the future:
- Some employers may offer this as an alternative to 401(k) matching contributions. In other words, the employee can receive one match or the other, but not both. Some offer it as a stand-alone benefit, regardless of participation in other programs. The idea of making it an “either/or” benefit could be a way to keep costs down while allowing employees to choose which benefit is more important for them.
- It can be a way to have a short-term salary boost for employees, with the employer secure in the knowledge that payroll totals will actually decrease once the maximum loan payment limit has been reached. It can be a short-term enticement to bring someone on board without the long-term commitment of setting the salary higher in the first place.
- Employees who take advantage of this benefit need to understand that it does not come with the tax benefits of a 401(k) contribution. Employer matching student loan payments are still considered taxable income. Some companies are trying to counter this concern by also making a small 401(k) contribution to offset the extra tax burden.
- Some congressional representatives are paying attention as well by introducing bills that may make it possible for employer student loan contributions to have tax benefits sometime in the future new regulations are passed to that effect. (One such proposed regulation is the “Student Loan Repayment Assistance Act.” It would allow up to $6,000 in tax deductible repayments. However, this is not the only option being considered. It remains to be seen what will happen on the legal and taxation front.)
- If utilized to its fullest extent, this type of benefit could have far-reaching economic impacts, as it could help individuals pay off their student debt faster, thus freeing up more money to be spent on things like home purchases or retirement savings.
- With employers who already offer this benefit, the repayment match amounts vary widely. Companies are often offering amounts ranging from around $1,000 to $2,000 per year, with maximum payouts over time ranging from $5,000 to even $10,000. Some select programs have much higher numbers—like annual payments of up to $10,000 with a maximum total of $60,000—but that’s rare and is usually associated with federal agency work. Still other organizations are offering small payments that continue until the loan is paid off, without a cap.
- A student loan payment match could be a way to court new employees who may see this type of benefit as a more personalized offering than the usual benefit list.
- Employers can decide the eligibility requirements, such as requiring the employee to be with the organization for a certain amount of months before becoming eligible, or requiring the employee to make a certain amount of on-time payments to the student loan individually before the employer match will begin. Employers may also opt to put a repayment provision in place if the employee does not stay with the employer for a preset amount of time.
Some Society for Human Resource Management (SHRM) surveys estimated in 2015 that only around 3% of employers offer this type of benefit. But with the student loan debt load looming large across the nation and more and more millennials and those from younger generations entering the workplace (and changing cultural norms as they do), this could very well be one of the next benefit trends to watch out for.
*This article does not constitute legal advice. Always consult legal counsel with specific questions.