In a tight labor market, where competition for workers is fierce, companies are making a play to attract and retain employees by offering to pay their student loans.
“We know that our team members have a lot of choices of where to work, where they want their career to go,” said Wendy Jolly, Inova’s vice president for human resources. “We want them to feel like they have a competitive set of pay and benefit programs to match the excellence we expect.”
Employers are heeding the call of younger workers for help with their education debt, and taking advantage of a new tax break born out of the pandemic. Still, there are more firms considering the perk than actually implementing it, a reluctance experts say is rooted in uncertainty about federal policies on debt cancellation and repayment.
Before the pandemic, student loan repayment benefits were becoming one of the most popular perks taking hold in corporate America. The percentage of employers offering student loan repayment assistance doubled to 8 percent between 2016 and 2019, according to the Society for Human Resource Management.
A 2021 survey by the Employee Benefit Research Institute found priorities shifted in the wake of covid-19, as employers sought to offer immediate financial help to workers in the form of short-term loans or emergency assistance. Craig Copeland, a senior research associate at the Institute, said the two-year pause on federal student loan payments also placed employer-sponsored programs on the back burner.
Companies are revisiting the benefit as the economy rebounds, demand for workers intensifies and job seekers grow more selective.
Nearly half of the 250 large employers — those with more than 500 employees — surveyed by the Institute in 2021 offer or plan to offer student loan assistance as a benefit, compared with 32 percent in 2018. Meanwhile, a third of the 238 employers surveyed by advisory firm Willis Towers Watson in 2021 said they would offer direct student loan repayment.
In March, Inova rolled out its student loan assistance program to more than 20,000 employees at five hospitals and a network of health-care facilities in Northern Virginia. So far, 1,600 workers have signed up, or about 1 in 10 employees, Jolly said.
The benefit is available to all employees and has a maximum benefit of $10,000.
Inova partners with Edcor Data Services LLC, an education benefits company, to administer the program. Employees provide their loan information to Edcor, which transmits payments from Inova to the student loan servicer.
A little-noticed provision of the 2020 Coronavirus Aid, Relief and Economic Security Act, or Cares Act, has also made it cheaper for companies to help employees repay their student loans. Companies can provide employees up to $5,250 a year toward their debt without the contributions being taxed. Employees are also spared from being taxed on the money.
Before the tax break, if a company had contributed $5,250 in student loan payments, it would have cost the employer and employee an estimated $400 in payroll taxes, according to accounting firm Insogna CPA. An employee subject to a 22.6 percent federal income tax rate also would have to pay approximately $1,190 in federal income taxes.
Firms that provide back-end support for student loan assistance programs are reporting an uptick in companies setting aside more money for the benefit in the wake of the tax break.
SoFi at Work, which helps companies with benefits, has seen an increase of more than 30 percent in contributions toward loan repayment programs from the first quarter of 2020 to the first quarter of 2021. The number of payments made by employers has more than doubled during that same period, said Barrett Scruggs, vice president of workforce financial well-being and business lead at SoFi at Work.
After the tax change, Fidelity Investments upped the maximum benefit it offers employees to help pay off education debt to $15,000 from $10,000. Google started a program in January that matches up to $2,500 in student loan payments a year for its employees.
The tax break is comparable to the existing tax benefits for tuition reimbursement, but it is only good through 2025. And that sunset is giving some companies pause about creating a student loan assistance program, Copeland said. Congress can extend the tax break or make it permanent before it expires, but it is unclear whether that will happen.
Copeland said firms are also on the sidelines waiting to see whether the Senate will approve legislation allowing employers to match their loan repayments with retirement account contributions. The House passed the bill in March.
“There still isn’t a lot of certainty around the benefit,” Copeland said. “Clarity on the tax issues, a decision on debt cancellation from the Biden administration and on the restart of repayment … will turn those maybes [from companies] into yes we are offering this benefit.”