Recently, there has been a flurry of interest around employers providing employees with the resources to pay down their outstanding student loans. But, please remember these programs are not to be confused with tuition reimbursement programs. Tuition reimbursement programs have been popular in many industries and professions for decades. Here’s more.
This survey finds employees truly want help with student loans.
What is Tuition Reimbursement?
Typically, with Tuition Reimbursement an employee enrolls prospectively in a college level class and is eligible for either the employer payment of the tuition up front, or, the employee themselves pay for the course up front and the employer agrees to reimburse them after it is satisfactorily completed. Tuition reimbursement programs may or may not include coverage for expenses related to the class beyond tuition itself. The important key is that the coursework is being taken while the employee is employed at the company.
What is a Student Loan Employer Payment Program?
Student loan employer payment programs attempt to provide the employee with financial assistance to pay toward outstanding student loans that they likely incurred prior to their employment. Student loan employer payment benefits have been in place for many years in certain industries such as healthcare.
So, what is driving this broader interest in the benefit?
Two reasons seem to be driving the change.
- There is a shortage of specialized college graduate talent that some industries need to support growth.
- The cost of college tuition has increased significantly and the student loan debt load that many students have at graduation is quite large.
More employers are now considering adding a student loan payment benefit to create a larger applicant pool and also to attract candidates to work in geographic locations that either have high costs of living or may be seen as less desirable.
6 Things Employers Should Consider When Developing a Student Loan Employer Benefit:
While tuition reimbursement may be provided tax free within certain parameters, student loan employer payment benefits will be taxable income to the employee. Check with your tax advisor when designing and communicating your program.
Impact on other Compensation based Benefits
Since the payments are taxable income, it is important to look at how compensation is defined for purposes of your other employee benefits such as disability insurance, life insurance and retirement plan benefits. If you do not want to “count” the student loan payment benefit as “compensation” as defined by other benefit programs, you will want to ensure your plan language carves that compensation out accordingly.
Benefit Program Design
Considering that the benefit is not constrained by any IRS rules because it is a taxable benefit, there are a myriad of ways that the benefit can be structured. Some companies may provide payments over a certain number of years, others may set an annual amount. Others may provide a payment for every hour worked. Some limit the repayment to certain jobs that are of critical importance or are difficult to fill. Fundamentally, the program design should support your attraction and retention goals. Considering that the payment is taxable income, will you provide dollar for dollar reimbursement of actual loan balances only, or, or will you provide a higher payment to attempt to cover taxes?
Are you going to administer this benefit yourself, or outsource administration? The administration could be as simple as you're verifying that a student loan obligation exists and providing payments directly to the employee in keeping with your program guidelines. On the other hand, you might choose to outsource administration to a third party vendor who makes payments directly to the lender. Some of these vendors also provide counseling to employees, assisting them in loan consolidation and other financial planning relating to their student loans.
Complications and Employee Relations Issues
Anticipate complications. Some employees may be participating in programs through their colleges or government entitles that provide loan forgiveness within certain parameters. Will your provision of a program impact their eligibility for these benefits? Will employees understand that the income is taxable and manage their withholding and tax payments accordingly? Will employees who have already re-paid their loans, or, never had loans due to their personal circumstances feel that they are getting short-changed? If the program is available to employees in certain jobs and not universally, will that result in hard feelings? Build responses to these issues in your communications program.
Documentation and Financial Projections
Ensure that your program parameters are in writing and include the mechanism by which the company might choose to end the program. Also, based upon the design of your program, work with your finance team to budget sufficient funds to cover the benefit.
Student Loan Employer Payment Benefits may be an important technique for your company to achieve its strategic goals relating to attracting, retaining and engaging the workforce necessary to provide your company with a competitive advantage.
If you have questions about student loan employer payment benefits or how it may impact your business, please contact your Hausmann-Johnson Insurance partner.