There are many sources of employee stress, but one is highlighted frequently in the press and continues to adversely impact the financial security of many employees: the $1.7+ trillion in outstanding student loan debt. According to a Prudential online poll conducted in March 2021 of student loan borrowers with $5,000 or more debt, 42 percent said their student loan debt triggers high levels of both mental and emotional stress – more so than other types of debt.
There are several compelling reasons to help employees with daunting higher education expenses by offering student loan repayment assistance and/or contributions to 529 college savings plans:
- Recruitment
According to the Society for Human Resource Management, only 8 percent of employers are currently offering student loan repayment benefits, only 11 percent offer 529 plan education/access and a mere 2 percent offer employer contributions to 529 plans. Consequently, those who do offer these forms of assistance have an opportunity to stand out in a competitive recruiting environment. By offering one or more forms of assistance, employers can demonstrate the concern they have about the financial and emotional weight that educational costs can have on employees.
- Diversity, equity and inclusion
With greater student loan stress on women (who owe two-thirds of the outstanding student loan debt according to the American Association of University Women) and Black people (who owe $25,000 more on average than white graduates according to the Education Data Initiative), offering student loan assistance and college savings support can help with racial and gender equity. These benefits can also provide support for LGBTQ employees (who are more likely to carry student loan debt than non-LGBTQ counterparts according to the Williams Institute at the University of California, Los Angeles, School of Law).
- Retention
Gallup’s recent “State of the Global Workplace: 2021 Report” found nearly half of U.S. workers across all industries are actively searching or watching for job opportunities. Offering enhanced benefits to help with the cost of higher education can help minimize turnover and foster loyalty. Replacing workers can cost between one-half to two times the employee’s annual salary.
Helping employees with student loan debt
Fortunately, employers have an unprecedented opportunity to provide support for employees struggling with student loan debt. The tax-free student loan repayment relief first made available to employers through The CARES Act in March 2020 was extended five years through The Consolidated Appropriations Act of 2021, signed into law in December 2020. As a result, under Internal Revenue Code Section 127 through 12/31/2025, employers can make annual contributions of up to $5,250 per employee per year through educational assistance programs and neither the company nor the employee will have a resulting tax liability.
How to offer tax-free student loan repayments
- Employers who have an existing 127 Educational Assistance Program in place (sometimes referred to as Tuition Reimbursement Plans) can simply amend their existing program to include student loan repayment of up to $5,250 a year.
- Employers who do not have a 127 Educational Assistance Program in place can establish a program providing up to $5,250 a year in tax-free student loan repayment assistance. SHRM, benefits providers and benefits counsel can provide support with the development or amendment of a 127 Program.
Helping employees repay student loan debt can not only reduce financial and emotional stress, it can also improve employees’ ability to save for retirement, purchase a home and begin to save for other goals.
Helping employees avoid student loan debt
In addition to helping employees repay student loan debt, employers are well-positioned to provide valuable financial education about ways to avoid student loan debt for the future. One of the best ways to help employees avoid or minimize student loan debt is by offering education about and matching contributions to 529 college savings plan accounts as a voluntary financial wellness benefit.
With 67 percent of respondents unable to identify 529 plans as an education savings tool (according to a May 2021 Edward Jones 529 awareness survey), employers can play a vital role in providing much-needed education about and access to these tax-advantaged savings and investment vehicles. Offering 529 plans as financial wellness benefits in the workplace can go a long way in helping reduce stress of those with higher education aspirations for themselves or their family members.
How to offer 529 benefits
- In addition to many easy-to-implement single state 529 plan workplace solutions (available directly from state 529 plans or their program managers), there are broader 529 platforms available for employers who have employees in multiple states and/or who prefer employees to have access to education about and payroll deduction to all 529 plans. These platforms enable employees to choose a 529 plan for themselves versus the benefits team trying to select a one-size-fits-all option for employees in various states.
- Regardless of whether the employer chooses a single or multi-state 529 platform/solution, employers can make a one-time contribution or ongoing employer match to support employees who are saving for future education expenses with 529 plans. A contribution of any size helps employees move closer to their educational goals.
The past 20 months have shown us how closely connected mental and financial health issues can be and how employee financial stress can lead to increased absenteeism, an uptick in healthcare costs and employee turnover, all of which can be costly to employers.
Three-quarters of employees rank student loan and 529 college savings support amongst the top three desired employer benefits overall (23 percent of which rank these as second only to health benefits). Employers are uniquely positioned to offer support to employees wherever they are in their education lifecycle – whether planning for an advanced degree, repaying the cost of a degree already obtained, or saving for a loved one’s future education. Offering benefits like these can help improve employees’ financial wellbeing, strengthen their commitment and loyalty and distinguish employers in the competition for top talent.
