With student loans increasingly more of a “hot topic,” more companies are evaluating whether to include this perk in their employee benefit packages. If you are fortunate to have this option, or are hoping your employer will eventually include this benefit, this article aims to explain what these programs entail.
What does a Student Loan Repayment Employee Benefit Look Like?
While the amounts that companies pitch in vary, monetary assistance in any form can be immensely helpful to those with high monthly payments. This frees up cash flow for other financial necessities, such as retirement savings. Most companies simply provide a match to what you pay in your monthly student loan payment, up to a certain amount. It should be noted that most companies will only participate in paying back loan’s that belong to the employee, which excludes Parent Plus Loans. Some companies limit their repayment programs to federal loans, but most will repay both federal and private student loans.
Some companies, such as Abbott Laboratories, have created programs incentivizing employees to save for retirement while paying down student loan debt. In 2018, the IRS allowed Abbott (clearing the way for other companies) to create a system in which employees direct a certain amount of their income to pay off student loans, and in exchange, the company contributes to their retirement account. In this scenario, the contribution to the 401(k) is tax-free, averting tax consequences that will be addressed later in this article. For example, if you paid $2000 monthly for your student loan payment, the company could contribute $2000 to your 401(k). Of course, caps and other restrictions may apply depending on the company’s policy.
What Are the Tax Consequences?
Prior to the passage of the CARES Act, employer contributions were subject to payroll and income tax, cutting into the amount paid towards loans. The CARES Act modified this, allowing all employer-match contributions up to $5250 annually to be exempt from these taxes. While the CARES Act expired at the end of 2020, the stimulus bill signed in December 2020 extended the tax-free benefit for an additional 5 years, with an expiration date of January 1, 2026. For example, under this new policy, if you have a monthly student loan payment of $2000, your employer could pitch in $437.50 monthly tax free, and you would pay the remaining $1,562.50. However, it should be noted that your benefit must be in writing in order to qualify for these tax incentives.
Depending on the political climate, it is not out of the question for this provision to continue even further into the future. However, if it is allowed to expire, companies can always revert to a program such as the Abbott Laboratories plan, in which employees make their student loan payments in exchange for tax-free contributions to retirement accounts by the employer.
Companies typically offer a match on payments employees make toward their student loans annually. For example, if you have a monthly student loan payment of $2000, your employer could pitch in $437.50 monthly tax free, and you would pay the remaining $1,562.50.
With the decrease in tax consequences, this benefit may be more appealing than a year-end bonus of a similar amount or other taxable perks.
What Companies Offer This Perk?
While not many companies offer this benefit currently, the number is growing alongside demand. For example, large companies such as Aetna, Estée Lauder, and Fidelity have implemented programs within the past few years. Regarding health care companies, Martin Health Systems appears to be the most prominent employer offering this benefit. However, they seem to only offer this benefit to nurses and pharmacists, although this could expand in the future.