Top 5 Questions About Student Loan Repayment Benefits

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December 5, 2016

Did you ever wish that someone would help you repay your student loans? Well, you're not alone. The Institute for College Access and Affordability found that currently, around 70% of students are graduating with student debt $35,000, on average, according to Edvisors, a company focused on connecting students and families with private lenders.

At the same time, the war for Millennial talent among employers continues to heat up with benefits at the forefront of the discussion on how to attract and retain top talent.

It's not surprising, then, that these two factors are colliding to create an environment where student loan repayment benefits are gaining popularity and more employers are offering them as an employee benefit to their growing Millennial employee base. According to a survey of mid to large employers conducted by Willis Towers Watson, while only 4% of companies are currently offering student loan repayment benefits, that number is expected to jump to 26% by 2018.

"Employers are really trying to get creative by taking traditional benefits and enhancing them to make their benefits packages stand out," explained Kaleana Markley, a program manager at Sequoia, an HR consulting firm. "While saving for retirement is important, many employees in today's society are struggling with financial situations that require more immediate action. Student loan repayment is therefore a great add-on to supporting employees' financial needs."

Here at CommonBond, we want to find a way to help our employees pay off their student debt faster, so we provide them $1,200 per year to put towards their student loans. We pay $100/month to each employee that has student debt until their debt is paid off. This has worked so well for us that we decided to build a product to help other employers contribute to their employees' student debt, enabling them to choose how much and how often they contribute to their employees' student loans. (Want to see how CommonBond can help your company implement a program? Learn more.)

As we work with more employers to offer student loan repayment assistance and speak to hundreds of their employees, we hear a few common questions that employees ask about student loan repayment benefits. Below, are their questions and, most importantly, the answers.

Employee Question 1: Where is the money coming from? Is it coming out of my paycheck, 401(k) or another benefit?

While this varies from company to company, most employers that provide student loan repayment benefits do so in addition to salary and any benefits they would normally provide. This is the case at Fidelity, Nvidia, PwC, and several other companies.

Employee Question 2: Is the money taxable?

The money that you get as part of student loan repayment benefits are currently taxed as income, but lawmakers are actively working to change that in order to encourage more employers to offer this benefit. If these laws passed, this would mean that employer student loan repayment benefits would get a tax-treatment similar to that of a 401(k). That means that neither you nor your employer would be taxed on the money they contribute to your student loans. As we wait for these laws to pass, there are two approaches to handling the tax treatments of student loan repayment benefits:

In most cases, your employer will offer student loan repayment benefits and they will be considered taxable income. Regardless, even if the benefit is taxed, the contribution is still additional funds you can put directly towards your student loans.In fewer cases, your employer may choose to match your student loan payment with contributions to your 401(k). This enables you to take advantage of the tax-free status of 401(k) contributions while also helping you save for retirement.

Employee Question 3: What makes me eligible?

Eligibility requirements vary from company to company. Here are a few examples:

At CommonBond, the benefit is available to all employees who have student debt starting on their first day of employment. It remains in place until their student loans are fully paid off.At PWC, the benefit is only offered to those in junior positions where employees are more likely to have recently graduated and have more debt. At Fidelity, student loan repayment benefits are offered to employees who have been with the company for at least 6 months.

If your company offers a student loan repayment benefit, make sure to ask your Human Resources contact about eligibility requirements.  And if your employer doesn't offer the benefit, why not ask for it?

Employee Question 4: Do I have to contribute to my student loan payments like I do to a 401(k)?

Yes, in most cases, you do have to contribute to your student loan payments in order to be eligible for student loan repayment benefits from your employer. While these benefits are not meant to replace your own contribution towards your student loans, they do enable you to pay off your loans quicker because both you and your employer are contributing to paying off your debt.

Employee Question 5: What's my employer gaining from doing this?

Student loan repayment benefits can seem a little too good to be true. But they're not employers really do benefit from offering these benefits. 83% of HR professionals report that their employees' money issues are having a negative impact on productivity, resulting in absenteeism and a diminished ability to focus. "By offering student loan repayment benefits," Markley said, "employers are finding a way to not just help them pay off a loan, but they are helping to alleviate one of the biggest stressors for their employees."

With so many companies poised to offer student loan repayment assistant benefits in the near future, you just might luck out and end up working for one of these companies. If you do, it's important to ask your HR representative some of these questions to better understand the particulars of the benefits they'll offer. If they don't currently have plans to offer repayment assistance, speak to your HR rep and let them know what these benefits would mean for you and other recent graduates.

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