New “Benefit” on the Block
By Lyndsey Barnett and Christina Rogers*
While it’s no New Kids on the Block CD in the 90s, the hottest new benefit on the block is employee student loan repayment. Recently, the crisis of the mounting student loan debt faced by the millennial generation has come to the forefront of political discussions and has now crept into the world of employment. Current statistics show that there are currently 44 million Americans with student loan debt, averaging about $30,000 in loans per person. This brings the total U.S. student debt burden to more than $1.3 trillion
Because of this debt, millennials entering into the workforce are forced to make tough career decisions. Not only does it have an impact on employment decisions, the financial stress of burdensome student loan repayments leads to issues with employee health and retention. To help ease this burden, companies are now offering student loan repayment as a benefit for their employees. In most situations, payments are made either directly to the employee (in their paycheck) or directly to the loan service provider on the employee’s behalf. This hot new benefit has not only been shown to boost morale and productivity, it’s also a great recruiting tool.
But, what about the cost? What about taxes? Currently, employers can’t claim a deduction for payments made to employee student loans and these payments are considered taxable income for the employee. However, this could all change due to proposed legislation pending in Congress right now! Some of the proposed legislation includes:
- The Higher Education Loan Payments (HELP) for Students and Parents Act. This Act would allow employers to make up to $5,250 per year in employee student loan repayments and up to $5,250 per year in contributions directly to an employees’ tuition savings account set up on behalf of their children tax-free. Each would provide employers with a tax credit based on 50% of the employer’s contribution.
- The Student Loan Repayment Act. Under this Act, employers would be provided a 3-year business tax credit equal to 50% of startup costs to create a student loan repayment program (up to $500 per participating employee). This Act would also allow employers who hire “eligible students,” who have at least an associate’s degree and a minimum of $10,000 in educational loans, to claim the Work Opportunity Tax Credit.
- The Student Loan Repayment Assistance Act. Provides a tax credit for employer-paid student loan repayments made directly to the lender equal to 10% of the amounts the employer pays on behalf of the employee (not to exceed $500 per employee per month). For small businesses that cannot use the credit against taxes, the credit is refundable.
- The Retirement Improvement and Savings Enhancement (RISE) Act of 2016. Allows employers to make matching contributions to an employee’s 401(k) or SIMPLE IRA account based on the amount of the employee’s student loan repayments.
Even though it is not known when or if any of this legislation will become law, it is still a benefit that you can offer to your employees now. Companies such as Aetna, Price Waterhouse Coopers, Fidelity, Kronos, and Chegg have already jumped on the train.
*Christina is a summer associate with Graydon and is not yet authorized to practice law.