Traditionally, employer benefit programs are focused on two things: investing and healthcare. Keeping your employees healthy and financially secure helps decrease turnover and increase productivity.
But when employees are buried in student debt, investing in retirement feels fruitless. Before they can focus heavily on planning for the future, they need to decrease their current student loan balances.
As an employer, you have the power to make a significant difference in your employees’ debt repayment timeline. Here are a few ways to do just that – and why helping your employees become debt-free is a smart business decision.
How Student Loan Benefits Work
Currently, employers offer a variety of student loan repayment assistance methods. These include:
Educational Support
The least expensive method is offering financial education to employees. This would typically involve hiring an outside expert to offer group meetings or one-on-one coaching. These can be done in-person or online.
These sessions can be helpful, especially if done repeatedly throughout the year. They may be offered on their own or in conjunction with direct monetary support.
Sign-up Bonus
Some employers pay a lump-sum toward an employee’s student loan balance when they join the company. This is a one-time benefit used to attract new employees, but it can also be seen as unfair to existing employees who never received a sign-up bonus.
Matching 401(k) Contributions
Many companies offer matching contributions to an employee’s 401(k) account. In these cases, the individual contributes their own money and the employer matches a certain amount.
One way that companies are combining student loan and 401(k) benefits is by matching student loan payments with a 401(k) contribution.
Here’s how it works. The employee makes a student loan payment, and the money comes directly out of their paycheck. In exchange, the employer contributes that same amount to their 401(k) account. This allows the employee to balance student loan repayment with saving for retirement.
Matching Student Loan Contributions
Employers may also offer a dollar-for-dollar matching payment to the employees’ student loans. If the borrower pays $200 to their student loans, the employer adds an additional $200. This is the most straightforward way to help your employees become debt-free.
Most companies that offer a matching student loan payment option will have an annual and lifetime limit. For example, the office chain Staples pays $100 a month for three years for eligible employees. Insurance company Aetna pays up to $2,000 a year for full-time employees, up to $10,000 total. Part-time employees receive up to $1,000 a year, up to $5,000 total.
Like 401(k) contributions, some companies require employees to work for a certain number of months before they become eligible for student loan repayment benefits.
As part of the CARES Act passed in March 2020, any student loan repayment benefits, up to $5,250, made by an employer between March 27, 2020 and December 31, 2020 will not count as taxable income. Unless this provision is extended, student loan repayment benefits will then be taxed after that date.
How Student Loan Repayment Benefits Employers and Employees
The total US student loan balance grows at a rate of about 7% every year. In 2019, the average graduate had $35,397 in student loans. New hires often bring mountains of student loan debt with them, and student loan repayment benefits can make a huge difference.
Decreasing Student Loan Stress
A recent study found that more than 85% of individuals with student loan debt name it as a major source of stress, and 33% call it out as one of their top three stressors. A 2019 survey from Marketplace-Edison Research found that those with student loans had two-thirds more economic anxiety than those without student loans.
“When I was paying off student loans I was very anxious and stressed,” said Melanie Lockert, host of “The Mental Health and Wealth” show. “I don’t think it affected my productivity per se, but it affected my quality of life and how I felt while doing the work. Of course, those feelings can indirectly affect work as well.”
Employers reap the rewards when workers have less financial stress. According to a study from the International Foundation of Employee Benefit Plans (IFEBP), about 60% of employers said they noticed workers found it hard to focus because of personal financial problems. Another 34% of employers said they noticed absenteeism and tardiness also related to financial stress.
This isn’t a new revelation – it’s basic psychology. Maslow’s Hierarchy of Needs states that humans need to feel physically safe before they can improve their psychological well-being. The same is true with financial stress. If your employee is worried about defaulting on their student loans, they may be too preoccupied to concentrate on work, and too emotionally drained to come up with innovative ideas or brainstorm new solutions.
Increasing Focus and Employee Retention
When employees feel financially secure, they’ll be more productive and attentive while on the clock. Even if it seems like your employees are producing decent results, they could likely accomplish even more if their attention wasn’t split between work and their student debt balance.
Student loan repayment assistance programs could also improve employee retention. 41% of surveyed companies offering student loan assistance have found it improves recruitment and 38% believe it has improved employee retention rates.
The data backs up those responses. Healthcare company Trilogy offers $100 a month in student loan repayment assistance to both full-time and part-time employees. Employees who utilize this program stay at the company 2.5 times longer than those who don’t.
Since it costs several thousand or even tens of thousands of dollars to train a new employee, it may actually be less expensive to pay their student loans. That’s not even considering the intangible benefits that come from having a roster of experienced, loyal employees.
Offer Employer Student Loan Repayment with ELFI for Business
If your company is interested in adding student loan repayment assistance as a workplace benefit, they can join ELFI for Business. ELFI will create a student loan repayment program designed for your employees, managing the actual payments so your accounting department doesn’t get bogged down with the details.
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