Practical Student Loan Assistance

According to a study done by Forbes, the estimated average student loan balance of a 2017 college graduate is $28,650.  Most millennials are savvy enough now to understand the importance of investing for retirement early so as to take advantage of compound interest.  However, many have limited available funds early in their careers. This faces them with the conundrum of either investing or paying down student debt.  There has been much discussion recently in the Democratic debates about possible solutions.  Additionally, employers are attempting to assist and retain young workers in this tight labor market.

How Employers are Helping

Abbot Laboratories offers a very favorable benefit. They allow qualifying employees of the company’s 401(k) that contribute 2% of their eligible pay toward their student loans through payroll deductions to receive an employer match equal to 5% of their pay deposited into their 401(k).  A private letter ruling from the IRS, issued in August 2018, recognized for the first time this type of benefit. By the same token, other companies offer different types of student loan repayment programs.  A survey conducted by the International Foundation of Employee Benefit Plans showed 4% of organizations in the survey currently offer some type of student loan repayment assistance benefit. Additionally, 2% are in the process of implementing a program and 23% are considering a similar benefit in the future.

Furthermore, PwC started a program in September 2015 where it pays $100 per month towards a participating employee’s student debt.  An extra $100 per month for an employee with student debt of $31,000 planning on paying it off over 10 years at a 6% interest rate will help the employee save almost $11,000 in interest.  Correspondingly, the employee will be able to complete the obligation two years faster.

While an employer can provide up to $5,250 per year in tax-free employer-provided educational assistance, any student loan payments made by the employer will be treated as taxable income by the employee.  There currently is a bill in Congress called the Employer Participation in Repayment Act of 2019. If passed, this bill intends to allow employers to contribute up to $5,250 per year in student loan repayment assistance tax-free.

College costs continue to rise.  However, politicians, Congress, and employers recognize the problem and attempting to provide assistance.  In various ways, some plans may be more realistic than others.