Why employer student loan repayments are the best dollar you can spend on a benefit

Hot take: employer student loan repayments are currently the best dollar for dollar benefit out there. 

Ok, that might not actually be too hot of a take but here at Highway, it’s something we seriously believe. By “dollar for dollar,” we mean that when you consider the value of a student loan repayment benefit relative to the benefit’s cost to the company, an SLR benefit is one of the most valuable voluntary benefits a company can offer. 

Here are three simple reasons why: 

1. It’s tax-free so the full value of every dollar goes directly towards paying down a student loan today 
2. Every additional dollar contributed by an employer saves employees extra money in the long run 
3. No other fringe benefit has the potential to impact such a large percentage of the modern workforce and give forward-looking companies an edge in attracting and retaining talent 

The effect of tax-free employer student loan repayments

Since employer student loan repayments are currently tax-free, every dollar (up to $5,250 per person per year) that an employer contributes to an employee’s student loan goes 100% of the way towards paying down that loan. 

Sure, instead of an SLR benefit, you could give the same employee a stipend or raise with an equivalent dollar amount, but in both cases, an employee would not feel the full financial and emotional impact of the spent benefit dollar. With a stipend or raise, there’s no guarantee the employee would actually use the money to pay down their student loan; more importantly, the company would be on the hook for payroll taxes. After income taxes have been deducted, the employee would have less money to pay down their loans with.

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With a stipend or raise, there’s no guarantee the employee would actually use the money to pay down their student loan; more importantly, the company would be on the hook for payroll taxes.

With a tax-free employer student loan repayments benefit, your employees will feel the full impact of every benefit dollar you spend. 

The dual impact of employer student loan repayments

Tax-free employer student loan repayments are a dual-impact benefit–not only does every dollar of a tax-free employer student loan contribution help directly pay down an employees’ loan principal, saving the employee an equivalent amount in loan repayments, but employer contributions can also help save employees hundreds to thousands of dollars in additional interest payments. 

If an employee is making regular, non-zero, minimum loan payments, every additional dollar contributed by the company will reduce the amount of outstanding principal that accrues interest and help the employee pay off their loan faster. 

For example, for a student loan with a $10,000 outstanding balance, 10 year term and 5% interest rate, an employer contribution of just $50/month could help an employee:

• pay off their loan almost 4 years faster
• save them $1K in interest payments
• save them $6K in principal payments 

To try a few more scenarios and estimate how much your contribution could impact a specific employee’s loan, check out our loan payoff calculator. 

The American workforce wants employer student loan repayments 

To say that student loan repayments are a popular benefit among Gen-Z and Millennial Job seekers would be an understatement. 

The American Student Assistance (ASA) found that 86% of employees ages 23-33 would commit to a company for 5 years if the company helped them pay back their student loans. A 2019 survey by the AICPA found that 41% of job seekers who had graduated in the past 24 months or would graduate in the next 12 months, ranked student loan repayments among their top 3 most desirable benefits. 

Today, Millennials and Gen-Z bear the majority of the burden of the student loan crisis and these two generations are on track to make up the majority of the US workforce by 2025 (Millennials alone will represent 75%). Companies who want to offer benefits that will make a meaningful impact on their employees' financial and emotional well-being will and do offer employer student loan repayments as a benefit.   

It’s clear that the current and next generation of skilled and educated American employees want this benefit. Savvy, forward-looking companies should and will continue to take notice. Question is, will your company be one of them? 

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Highway Benefits makes it easy to create and administer an employer student loan repayments benefit. With our turnkey platform, your company can design and launch your benefit plan in as few as two weeks and ensure that all contributions are paid directly into your employees’ student loan accounts. Schedule a call with our team today to get started!

Not convinced that student loan repayments are the best dollar for dollar benefit? Send us a note and tell us why!