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Hello, everyone! Today, I have a guest post from Jacob at Dollar Diligence. As many of you may have noticed, I began to research and focus on the topic of Student Loan Forgiveness the last couple of months. Jacob noticed and he wanted to share his thoughts of a relatively new trend in student loan repayment. This new trend deals with companies offering student loan repayment assistance programs to employees as a benefit. Enjoy! - $eth
There is a rather new employer benefit that I am glad is gaining traction in today’s workplace. The benefit is employer-sponsored student loan debt repayment. Most often, this comes in the form of employer matching programs that help employees to pay off student loan debt by matching their payments up to a capped monthly and yearly amount.
An astonishing seven out of ten college graduates will have student loan debt along with their bachelor’s degree, and that number grows even higher when a professional degree is obtained. Numerous studies, not to mention national statistics on student loan debt, show that making monthly student loan payments is a serious and sometimes overwhelming financial concern for many Americans. Employers are starting to take notice of this, and to offer programs intended to help their current employees and entice new, skilled workers.
Companies That Offer Student Loan Repayment Assistance
The accounting firm PricewaterhouseCoopers (PwC) offers this type of assistance to employees at a rate of $100 a month for up to a six-year maximum. That’s a maximum average of $1,200 a year for a total of $6,000 in student loan debt assistance.
Connelly Partners, an advertising agency, offers an employer-sponsored program to its employees that also pays $100 a month with a five-year cap of $5,000 and a final $1,000 bonus in the employee’s sixth and final year in the program.
Most employers who are currently offering this type of benefit program do cap the payments either by total number of years, total amount of assistance, or both. Still, the programs are a tremendous help to employees straddled with monthly student loan payments.
I would argue that you can tell a lot about the way a company values its employees by whether or not it offers programs that aren’t required by law. For example, there are laws governing when employers must offer healthcare benefits to their employees. However, while politicians have certainly tried to push helpful legislation in regards to student loan contributions, there are no government mandates that I know of concerning employer-sponsored student loan payments.
Why Companies Offer It
These programs are purely voluntary by the company and probably cost quite a bit to maintain. They are an investment into the company’s workforce, though, and a way to help employees live happier lives free from debt. They also probably engender quite a bit of company loyalty. I know I would feel loyal about an employer that was paying my student loan debt down for me!
Downsides to These Programs
Up until now, I have mentioned only the upsides to these programs. Certainly, it’s hard to find something to complain about when we are talking about free money to pay down your debt. However, there is one “gotcha” to watch for if you find an employer who offers one of these programs and you decide to take part in it.
Unlike employer-paid healthcare, the IRS still considers employer-paid student loan payments to be taxable income. That means the payments your employer makes toward your student loan payment must be reported at the end of the year on your tax return, and you must pay income tax on the annual benefit.
Luckily, as employer-sponsored programs become increasingly common, it’s possible that such benefits will eventually be commonplace enough for the government to view them as just another tax-free employment benefit. In fact, in just the last few years some members of Congress have talked about amending the tax laws to make this possible.
Until then, though, don’t let the tax implications deter you from seeking out and taking advantage of these programs! Remember, even if the benefit is taxable, it’s still free money that will get your debt under control sooner. If you are worried about a higher tax bill because of the benefits, talk to your employer’s human resources department about increasing the withholding amount on your paychecks to offset any additional amount you’ll owe at tax time.