Soon-to-be college graduates who are lining up job interviews and weighing offers should check out employer benefit packages for a new perk – student loan repayment plans.
To make it easier for employees to pay off college loans quicker and to recruit and retain recent grads, more companies are adding repayment plans to their package of benefits that include health care and retirement accounts.
The plans vary, with some employers providing as much as $5,000 to $6,000 a year, while others offer loan repayment funds instead of signing bonuses, according to the Society for Human Resource Management. Some employers even allow employees to tap this benefit for student loans they’ve taken out for their children.
Typically, the funds are paid directly to the worker’s loan servicing company. Workers can take advantage of the employer contributions and still make payments of their own.
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Perhaps the biggest drawback, however, is that the employer contributions are considered taxable income for the purposes of income and payroll taxes. But legislation pending in Congress could change that.
While a 2015 survey by the human resources organization found that only 3 percent of employers offered workers a hand on their student loans, more are expected to be doing so soon or are thinking about it.
“Student loan repayment benefits help with recruiting, retention, engaging employees and driving loyalty in ways that other programs do not,” said Chris Duchesne, vice president at EdAssist, a Massachusetts-based education benefits company, said in a Society for Human Resource report earlier this year.
Indeed, the programs appear to have significant appeal to droves of college graduates with thousands upon thousands of dollars of student loan debt.
In a survey last fall by Iontuition of current and former college students with loans, 55 percent of the respondents said they would rather see the amount they are paying for health care go toward their student loan balance. Nearly 50 percent said they would prefer student loan payment contributions from their employer rather than 401(k) matching funds for a retirement account.
The college loan assistance plans have caught on mainly in the corporate world rather than with nonprofit employers, and financial services companies and technology firms have been in the forefront.
The accounting firm of PricewaterhouseCoopers announced it will offer up to $1,200 a year for up to six years as part of its student loan paydown plan for associates and senior associates. Kronos, the workforce management services company, plans to offer $500 a year to employees for student loan repayment.
While I’m for most anything that will put a dent in college debt, it’s well worth crunching the numbers (or get a tax expert to do it for you) to see how much of a benefit you’re truly getting after taxes. And if the perk comes with a smaller salary than a job offer from another company that doesn’t provide the benefit, you might be better off taking the higher pay.
In addition, ask if there are any caps on the total benefits, and whether there are requirements to reimburse the employer if you leave at some point after receiving the incentive.
The tax issue will likely be key to the perk’s popularity. Earlier this year, U.S. Sen. Mark Warner, a Democrat from Virginia, introduced a bill that would allow employers to put up to $5,250 a year in pre-tax dollars toward payment of a worker’s federal or private student loans. The legislation even has some bipartisan support.