A New Approach to Tuition Aid: Student Loan Repayment Plans

Employers wanting to expand benefit packages, take note! Last December, Congress passed the Consolidated Appropriations Act of 2021. This new provision makes it easier than ever for private employers to offer student loan repayment plans. Yes, you heard that right – STUDENT LOAN REPAYMENT PLANS! With this new legislation, private employers can contribute up to $5,250 per year to offset employees’ student loan payments without employee tax implications. This is big news for fresh college graduates entering the workforce ladened with college debt, or the many who carry mountains of student loan debt from another decade. Truth be known, the cost of student loan debt of employees entering the workforce makes it less likely for them to take advantage of traditional tuition benefits or retirement savings.

Student loan debt in the U.S. doubled over the last decade. Let’s put that into perspective. This means that on average 70% of today’s degreed workers leave college with around $40,000 in student loan debt. That is one whopping IOU! And this massive note converts to fewer employees taking advantage of tuition reimbursement programs. Willis Towers Watson reports that companies offering a tuition reimbursement plan see less than 10% of employees using this benefit. What gives? This is “free” tuition aid, right?

A closer look uncovers two core issues. Fresh college graduates may be less inclined to jump right back into the classroom after dedicating a significant amount of time to the classroom. They need a break from assignments and required reading. Additionally, they are transitioning to the workforce, which is another big life change. But the far bigger issue is the matter of funds. Traditional tuition reimbursement programs are just that – a reimbursement. In many cases, this means employees need enough disposable income on hand to pay for the course until they are reimbursed for successful completion. This up-front cost can be limiting for an employee who is weighed down with student loan debt. And a hefty monthly college loan payment affects more than just likelihood to use a tuition reimbursement program. This debt may also affect whether employees contribute to their company retirement plans, further affecting their long-term savings potential. In many cases, this decision means the employee is also giving up employer retirement contributions.

In summary, it makes sense for companies to reimagine educational perks for a new generation entering the job market with mounting student loan debt. Early studies show strong employee interest in this benefit. In fact, approximately 40% of employees polled in the United States were interested in a student loan repayment plan. And this level of interest translates to business outcomes as well. Companies offering this benefit can expect to see higher retention and recruitment as a result.

Originally featured in UBA’s August 2021 HR Elements Newsletter.