By Mika Bhatia, Staff Writer at Credit Karma
Student loan debt is no joke. The United States' total student loan debt amounted to over $1.3 trillion in the first quarter of 2016, and it's rising at a rate of about $2,700 per second.
Beyond its financial impact, student loan debt can also have a significant impact on your quality of life.
In June 2016, a Credit Karma survey of 1,050 21- to 40-year-old borrowers found that 69 percent of respondents agreed at least slightly that student loan debt prevents them from realizing their personal goals, while one in three said that this described them very or extremely well.
Almost half said their romantic relationships have been negatively impacted by student loan debt.
Employers are starting to take note. Some companies, including PricewaterhouseCoopers (PwC) and Fidelity Investments, are implementing programs that help their employees pay down their student loan debt.
How are employers helping with their employees' student debt?
Currently, 4 percent of companies in the U.S. offer some type of student loan repayment program, according to the Society for Human Resource Management, up from 3 percent in 2015.
To learn more, we talked to two companies that help employers implement student loan repayment programs -- Gradifi™, a startup founded in 2014 that's working with over 200 employers to implement its Student Loan Paydown (SLP) Plan™, and EdAssist™, a company that offers employers counseling and advice on tuition assistance as well as its EdAssist™ LoanRepay program, launched 14 months ago.
How does an employer-based student loan repayment program work?
Your employer contributes a specific amount of money on a monthly or annual basis (up to a lifetime maximum decided by your employer) that goes toward paying off your student loans.
It's up to your employer to choose how much to contribute. According to Tim DeMello, founder & CEO of Gradifi™, most of the employers Gradifi™ works with offer employees $100 per month. PwC, for instance, contributes $100 per month for up to 72 months.
Employers may also choose to increase the amount over time -- for instance, offering $100 per month to employees for their first year with the company, $125 per month for the second year, and an additional $25 for each subsequent year until the employee maxes out his or her benefit (which could be $10,000, for example).
Chris Duchesne, vice president of client services at EdAssist™, says he's seen employers offer anywhere between $50 and $500 per month to their employees.
He also notes that if the monthly benefit your employer offers exceeds the monthly student loan payment you owe, your employer will likely only contribute up to the monthly payment.
Though the details vary depending on the program, it often works like this:
- Your employer determines which employees are eligible for the benefit. Part of this process includes verifying that you actually have a student loan. Both public and private loans should qualify.
- Your employer decides on the program it wants to implement, including monthly contribution amount.
- Your program administrator, e.g. Gradifi™ or EdAssist™, disburses the money directly to your student loan servicer on behalf of your employer.
Why are employers offering this benefit?
Employer student loan repayment is a perk that appeals especially to millennials, who are expected to make up 50 percent of the global workforce by 2020 and who are more likely than all other age groups to have student loan debt.
Offering this benefit may make employers more attractive to prospective employees. EdAssist's student loan debt survey found that 47 percent of respondents with student loan debt said they'd look for employer student debt repayment assistance in a new job.
What employers offer this benefit?
Large companies like PricewaterhouseCoopers aren't the only ones offering this perk.
DeMello says Gradifi™ is running programs with a number of small employers (generally less than 100 employees) and midsized employers (generally between 100 and 999 employees). For companies of this size, the program may cost around $100,000 to $200,000 per year.
For context, a 401(k) benefit program for a 100-person company could cost an employer $1,750 per person in employer contributions (based on the national average company contribution of 2.5 percent of a base salary of $70,000), plus $3,300 in program administration costs -- a total of $178,300 annually if all 100 employees participated in the program.
Small employers often find the costs of running this kind of program expensive, or they may not have the stability or resources to establish a retirement plan.
They may also prioritize health benefits over a retirement program or student loan repayment program. According to a 2015 survey by the Employee Benefit Research Institute, health care dominated as the benefit that matters most to job seekers.
What impact are these programs having?
As these programs are still relatively new and not widespread, it's difficult to draw any conclusions about their impact or effectiveness. However, DeMello and Duchesne say they've received positive feedback from both employers and employees.
Employers reported that their employees think more highly of them because of these programs, and that these programs have been successful in attracting and retaining talent and driving loyalty and engagement.
What are the limitations?
It's up to your employer to determine the maximum employee benefit of its program.
Another consideration is the tax impact: Currently, you may pay taxes on the benefits you receive from this kind of program, as it's considered additional income. To find out more about what this may mean for your situation, you should consult your tax preparer or tax expert.
What about those employees who don't have student loan debt?
For employees who wouldn't benefit from a student loan repayment program, will they miss out?
Not necessarily, DeMello says. Many of his clients have implemented programs that offer employees money toward one of a few options that they can pick from, for instance: a gym membership, a health savings account (HSA) or a student loan repayment.
That way, all employees receive the same amount of benefit money but can allocate it to a program that suits their needs.
But not all companies offer this type of choice: Some companies just offer the loan repayment program and you either qualify for it or you don't. For employees who have already paid off their student loans, or for employees who don't have student loans, this may not seem fair.
Companies should consider offering an array of programs so employees who don't benefit from the loan repayment perk can benefit from other programs, Duchesne says.
Bottom line
While it's not the only perk you should think about when you're job hunting, having your employer help pay down your student loan debt may be a good benefit to consider if it's offered.
About the author: Mika Bhatia is a Staff Writer for Credit Karma. She's worked in financial services and tech, and has now found the perfect union of the two at Credit Karma. When she's not busy coming up with credit-related analogies, she's most likely supporting the Warriors, enjoying a fine cup of British tea or doing yoga (goal: completing a headstand without toppling over). Follow her at @MikaBhatia!
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