Total student loan debt in the United States currently stands at about $1.75 trillion, according to Forbes. Combine that with record-high inflation rates that are only just beginning to cool down, and you have a recipe for some serious financial issues for most people living in the United States. Even for those working full-time, it’s become increasingly difficult to manage living costs with other expenses. For employers, this can take the form of employees feeling overly stressed and burnt out—it may also have them seeking other opportunities with higher pay and better benefits.
This problem has affected both employers and employees, and here at Payday HCM, we’ve had several companies approach us about this issue. It can seem daunting when you’re facing things that you may feel like you have no control over as an employer. Luckily, there are steps you can take as an organization to help combat these financial struggles for your employees and one of those options is an employer student loan repayment program.
In this article, we’ll discuss the ins and outs of employer student loan repayment programs. First, we’ll go over the history of student loans and repayment plans in general. Then, we’ll dive into the specifics of how these programs operate and what your organization can do to support them.
In this article, you will learn:
- The History Of Student Loans and Repayment Programs
- How Employer Student Loan Repayment Programs Work
- How To Implement A Student Loan Repayment Program Into Your Business
The History Of Student Loans and Repayment Programs
To understand how to support your organization through these programs, it’s important to know how we found ourselves in this situation in the first place.
The Origin Of Student Loans
According to Lend EDU, the origin of student loans in the U.S. dates back to the early 1800s, when private loans were offered to Harvard students. Government-sponsored student loans can be traced back to the GI Bill passed in 1944 to provide returning veterans with funding to attend universities.
It wouldn’t be until 1958 and the passing of the National Defense Education Act that federally-sponsored financial aid would be available, according to NPR. This bill primarily focused on providing funding to individuals looking to study in STEM fields to help support the U.S. military.
This helped pave the way for the Higher Education Act of 1965, which established a broader student-loan system backed by private bank loans.
The Current State of Student Loans
Throughout the 1970s, 1980s, and 1990s, the structure of how the federal government offered student loans underwent different iterations. Because the loans were essentially federally insured (if people couldn’t afford to pay their loans back to the banks, the U.S. government would take on the debt), numerous measures were taken to alter the structure to slow the increase of government debt.
Finally, in 2010, the Obama administration passed a law officially ending the Federal Family Education Loan program, making all student loans now issued purely by the federal government. According to New America, the elimination of the program generated over $68.7 billion in savings. Student debt, however, remained.
How Employer Student Loan Repayment Programs Work
Employers can help their employees pay for their student loans by offering a repayment program as a benefit. This benefit can take a few different forms.
Three Methods for Repayment
Essentially, three common methods exist for offering a student loan repayment program. These include:
- Recurring payments
- Signing bonuses
- PTO exchange
With recurring payments and signing bonuses, employers simply contribute either a certain monthly amount toward an employee’s student loan debt or offer a lump sum payment at the time of hiring.
With PTO exchange, employees are given the option to exchange unused PTO for cash which can then be used toward payments for their student loans.
From there, it’s generally up to each employer to establish things like eligibility requirements or payment amounts. You’ll want to look at your current benefits cost and see what amount your organization could reasonably afford.
Education Assistance Programs
Education assistance programs are the most robust way for employers to offer assistance in helping their employees cover educational costs. According to the Internal Revenue Service, educational assistance programs are a benefit an employer can offer to an employee to help cover costs associated with things like books, course fees, and tuition.
Educational assistance programs allow employees to deduct a combined $5,250 per calendar year from their gross income to pay for these costs.
However, there are a few caveats to this kind of program. Firstly, any costs paid for by the program must have been accrued during their employment; the exception to this is student loan debt. The second catch, however, is that using this benefit to pay for student loan debt is only temporary: unless permanent legislation is passed, this money cannot be used toward student loan repayment after January 1, 2026.
How To Implement A Student Loan Repayment Program Into Your Business
Now that we know what these programs actually are, we can start looking at ways that you can implement them in your organization.
Student Loan Repayment Programs and Benefits Packages
Student loan repayment programs are an employee benefit; as such, they’ll fit into your current benefits package. While educational assistance programs operate on a calendar year basis, simpler repayment programs could be implemented at any time.
These programs are a great way to bolster your benefits package. According to CNBC, about 70 percent of college graduates say that their debt will impact their career decisions, and according to the Society of Human Resource Management, about 56 percent of employers already offer this kind of assistance. This will prove to be a crucial benefit in acquiring new top talent.
Make It Known and Easy To Understand
Much like the other benefits in a benefits package, you’ll want to ensure each employee is aware of these benefits. Things like an emailed press release to members of your organization or celebrating when someone’s debt is paid off using the program are great ways to ensure everyone knows the benefits available to them.
You’ll also want to ensure that the benefits are easy to understand. Not everyone needs to be an expert on them, but employees should be able to get basic information about what is and isn’t covered so they know whether these benefits are right for them.
Investing In Your Organization’s Talent
According to CNBC, nearly a third of college graduates will pursue some sort of freelance or gig work on top of a full-time job in order to support their financial needs. With these kinds of levels of stress, it’s not hard to see why someone might leave a job they are at for another if this new job offers them some sort of additional financial assistance. That’s why offering a comprehensive benefits package that includes a student loan repayment program is so important for organizations.
While these programs are certainly a great benefit to add to your benefits package, they aren’t the only thing that can help you increase retention and attract top talent. Ancillary benefits are one of the leading indicators of employee retention in the modern era.
Learn more about other ancillary benefits that you can offer to take your benefits package to the next level.
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