It sounds almost too good to be true: you get a job, AND someone is paying for your student loans? It’s a heaven-sent solution by the looks of it—but you’d wonder why anyone in their right mind would agree to pay off thousands of dollars worth of debt for a student.
You’d be surprised at how many employers offer this incredible option. Not always the same way, maybe some will provide you with an additional allowance, while others have a system where your loan payments become your deductibles. In contrast, others still offer partial coverage in exchange for your services. It varies across the board, with different organizations having different takes on the subject.
However, most employer student loan repayment programs are mutually beneficial, allowing both the student and the employer to win some in the process.
Understanding how these programs work
In a crumbling economy that’s teeming with talent, awareness, and a better understanding of market dynamics, companies struggle to bring in the best individuals to work for them.
The Millennial generation of employees isn’t the only one indebted and embroiled in student loans, many others before and after them. College graduates owe thousands of dollars worth of loans and interest combined.
With such sky-high amounts of debt piled up, employees are looking for benefits such as loan repayment assistance programs (LRAPs) above other bonuses and perks. What’s pushing employers to think more about them is the impact student loans have on their employees’ dedication, production, retention, commitment, and the company’s overall recruitment strategy.
Although relatively new and offered by major companies, it’s hopeful that other employers like startups will begin to follow suit. These programs work primarily by paying the employees lender directly for a certain period or until the agreed-upon amount is reached. The employee and employer both match a certain percentage of their income for loan payments.
It sounds confusing, but it’s simpler than you imagine. In essence, your employer takes on the responsibility of managing your payments, either covering a specific amount or helping you up to your monthly payments.
So, while you’re unlikely to have your loan completely waived off or paid for, the additional support can go a long way in helping you pay it off faster and save in the long-run.
There are certain criteria for eligibility, limitations, and perhaps additional requirements such as a contractual agreement, a screening process, testing, credit history evaluation, even performance-based rewards. Some companies will require that you spend at least 6-months with them before you qualify to apply.
Generally, the cap is at $10,000, and conditions such as continued payments are in place, helping companies count on the employee’s contribution too. Still, all in all, there are several advantages to these LRAPs.
The advantages to employers
As we mentioned, LRAPs aren’t only in the interest of the employees using them. They’re also quite useful for employers that offer them, which is why Willis Towers Watson predicts LRAPs to rise to 34% by 2021—a massive leap since the initial 8% in 2018. Let’s break down some of the primary advantages to employers:
- Minimal costs to administer
It’s relatively easy for employers to set these LRAPs for their workforce. Much like any other financial perk, it makes for a great recruitment strategy that allows you more return on investments. It can act as an employer-funded 401(k) plan according to the IRS. It takes away debt pressure and allows employees to pool in for their retirement fund.
- It helps recruitment and retention
Why wouldn’t employees want to work for a place where they feel valued? Millennial employees, who are expected to make up most of the workforce by 2025, factor in more than just the material benefits offered at their jobs. A workplace that cares about their interests is one that’s likely to appeal to them the most.
- Happier employees = more productive employees
With reduced financial strain and mental pressure, employees are more likely to exhibit higher productivity more commitment, with 86% of participants from a survey saying they would commit to a company for five years or more if they helped with their loans.
- Offers you a unique competitive advantage
If your company can offer loan repayment assistance, you’re already one of a limited fraction of companies who have that incredible advantage. It’s almost impossible for many companies to order that kind of financial support to employees, which gives you an incredible edge above competitors. Bring in the best talent, most competent employees, and incentivize with reasonable offers such as this, with little to no additional marketing or recruitment costs.
For employees, the advantages are also fairly evident and self-explanatory because you have the knowledge that you’re in a mutually beneficial environment.
Applying for these loan repayment programs
The CARES act has meant that companies will have a unique opportunity until December 31, 2020, to pay up to $5250 of employees’ student loans, tax-free. This is a definite step in the right direction, allowing more programs to be launched and put in place to benefit employees that have been hit by the COVID-19 crisis especially.
A tax-break is always a difficult, but it’s one that can be incredibly useful in the long-run. It’s what many companies may need to step up and take advantage of the leniency; however, there are certain drawbacks. The bill favors those in higher income and tax brackets, making it difficult for many others to benefit.
But still, we remain hopeful that this will encourage more employers to step up.
For companies looking to apply, it’s important to understand that these are competitive opportunities. If you’re fortunate enough to offer, consult with a reliable lender such as Education Loan Finance (ELFI) and see how you can move forward.
Find out about their student loan programs and services related to Employer Participation in Student Loan Assistance Act that has the potential to be life-changing for many of America’s brightest, most financially bogged-down generations.
ELFI elaborates more on their work related to the CARES Act and how employers can make education and financial stability more equitable on their website.
If businesses begin taking an active interest in their employees’ needs rather than perceived wants, basing them on changing trends and preferences generationally, all stakeholders will benefit.