A provision in the latest coronavirus stimulus package allows employers to contribute to their workers’ student loans tax-free up to $5,520, and the trend is gaining momentum among employers who see it as both a recruitment and a retention tool.
“I began to hear story after story … about how student loan repayments were going to be extremely helpful,” Tina Walker, head of human resources at the Los Angeles-based nonprofit California Community Foundation, told Yahoo Finance. “So this was really in response to hearing staff express enthusiasm” for the benefit and “saying: ‘What can we do to alleviate some of the pressure?’”
As of 2019, 8% of companies are offering student loan repayment assistance, according to a survey of 2,763 HR reps by Society for Human Resource Management. This was up from 4% in 2018. More are expected to join the bandwagon after the stimulus legislation.
Employer-sponsored education benefits are not entirely new: Large companies including Starbucks (SBUX) to Walmart (WMT) offer education-related perks, and others like Chegg (CHGG) and Peloton (PTON) specifically offer repayment assistance for their employees.
And the new provision makes this more palatable for businesses, given that contributions employers make to their workers’ student debt is tax-free and don’t raise the employee’s gross taxable income.
“The growth has been exceptional,” Greg Poulin, co-founder and CEO of student loan repayment startup Goodly, which is one of the companies that’s helping employers navigate this benefit, told Yahoo Finance.
‘We are committed to doing more’
The CARES Act, passed in March, specifically amended the Internal Revenue Code to exclude employers from incurring taxes on a qualified education loan.
Since then, “contributions have really skyrocketed,” Poulin said, adding that with the latest stimulus legislation — which extends the provision for five years — “we expect that to continue into 2021 as well.”
The mechanics of the student loan benefit — from the amount to the eligibility of employees — is pre-determined by the employer.
The average employee on Goodly’s platform owes about $31,000 in student debt, and the size of each employers’ contributions varies from $25 to as high as $400 per month for an employee. An extra benefit, Poulin added, is that contributions are applied directly to the principal as opposed to interest or late fees.
“The reason that student loan benefits are so compelling and have such a big impact is that not only is it now pre-taxed and 100% of those dollars are... applied directly to the principal,” said Poulin, who is paying off $80,000 in student loans himself.
At Walker’s nonprofit in Los Angeles, as of November 2020, employees who had been with the company for a year could opt in for their employer to contribute either $100 or $200 to their student loan repayment. The first payment started Nov. 1. So far, 23 out of 73 workers have signed on for the benefit.
At GoEngineer, an engineering firm based in Salt Lake City, Utah, eligible employees can opt for $25 payments to their student loans.
The company is starting small to “dip our toes in the water to see what that looks like because we didn't know how many people this might affect,” GoEngineer Human Resources Manager Connie Jaracz explained. “We wanted to see what our numbers would look like before we can commit to more. We are committed to doing more. We just need to know what that looks like and budget accordingly.”
Mack Boring & Parts in Somerset, N.J., has been offering the benefit for almost two years now and found that the perk gave the company an extra edge when competing for workers.
“For us, it has helped with attracting top talent to our organization and also has helped with retention,” Mary Hogan, Mack Boring & Parts’ HR director, told Yahoo Finance. “My peers would agree that this is a leading edge benefit and one that will set any company apart from their competitors in the job market.”
Hogan decided to roll out the program in early 2019, with the company contributing $100 a month. Nine employees are currently taking advantage of the benefit. She added that the trend is here to stay, “especially as long as student debt is so high and such a problem in our country.”
‘Not everybody who has a job is a rich person’
Critics of the tax-free contribution extension argue that the provision does not go far enough in helping the country as millions of Americans remain unemployed because of the coronavirus-induced lockdowns.
Others argue that the tax-free benefit is regressive in that it helps higher-income workers instead of those struggling and may encourage more people to take out student loans to take advantage of this benefit.
Supporters stressed that there was a bigger picture — and a longer timeline — to consider.
“Not everybody who has a job is a rich person,” Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, told Yahoo Finance. “What if McDonald’s started doing this? What a huge opportunity this is? That could be a huge benefit to people who make minimum wage.”
Aarthi is a reporter for Yahoo Finance. She can be reached at email@example.com. Follow her on Twitter @aarthiswami.