What if your boss was to make you a once-in-a-lifetime deal? “Work for me and I’ll help take care of your debt.” Oh come on – there’s no way any boss is going to make a Daddy Warbucks offer like that!
Don’t be so sure. In fact, one of the most interesting trends we’re watching in employee retention is student loan repayment assistance programs. Company owners and managers are taking it seriously for qualified employees. Let’s discuss how this program works.
Employers’ Student Loan Assistance – A Game Changer
You’re right in assuming this was not a thing back in grandma’s day! The trend is fairly recent but definitely significant. In fact, the Society for Human Resource Management states that within the last four years, the percentage of companies investing in student loan repayment went from 8% to 17%.
Furthermore, 31% of large companies now plan to offer some type of student loan assistance over the next two years.
Granted, these concessions are not historical as of yet. After all, there are limits. Google is only paying up to $2,500 for full-time employees. Estee Lauder is paying $100 a month. SoFi is paying $200 a month.
The emergence of emergency loans for bad credit in the UK is another interesting trend paralleling the rise of student loan assistance in the workplace. While traditional lending options often exclude individuals with poor credit histories, the growing market for emergency loans for bad credit is addressing this gap. These loans are designed to help people who find themselves in urgent financial situations, providing a lifeline in circumstances where mainstream financial institutions might not offer support. This development reflects a broader shift in the financial industry, recognizing the need for more inclusive financial solutions that cater to a wider range of credit profiles. It’s a recognition that financial emergencies don’t discriminate based on credit scores and that everyone may need access to emergency funds at some point.
What’s the cause of all these sudden acts of kindness? They’re not so random.
From Resignation to Repayment Programs
Is it coincidence that the student loan repayment experiment is happening at approximately the same time as The Great Resignation?
While the COVID-10 pandemic started the trend of people quitting or being laid off, the trend has continued well into 2021 and 2022. In fact, the quitting rate is still increasing even while big business gets back to normal.
According to the Pew Research Center, 63% of workers who quit in 2021 cited no opportunity for advancement, while 63% also cited low pay, and 57% said they felt disrespected by employers.
In fact, labor shortages are so severe, as far as millennial workers go, that retiree-aged baby boomers are a rising demographic in the workforce.
Not only are these employer-sponsored repayment programs a means to bring back younger workers, but it’s also a sign of business going back to normal on a larger scale.
Now that companies are moving forward, they are either offering student repayment plans or plan to do so in the next 2-3 years – and even upwards of 30-40% of respondents were making it part of their retention strategy.
Some companies like Nvidia, Abbott, and New York Life are sweetening the deal by offering student loan repayment assistance and a telecommuting job that lets employees work from home.
Who Started the Student Loan Repayment Trend?
Was this all to Trump or Biden’s credit or some heated political issue?
No, it’s just a natural reaction to what was a great idea – what if you could somehow incentivize student loan repayment for the employer, which would most likely suffer great loss if they just did it out of the kindness of their hearts?
The real game-changer was the Consolidated Appropriations Act of 2021, which allowed employers to count student loan repayment as a tax-free benefit to employees. Currently, employers can make contributions up to $5,250 per person toward “eligible education expenses.”
Under the provision, the student doesn’t have to count the donation as taxable income. This government provision remains in effect until at least 2025.
How Do Students Receive the Money?
The system operates similarly to a lump sum vs. annuity arrangement. Depending on the judgment of each employer, you can receive a large payment one-time, or get recurring payments. You can pocket the money yourself or the amount can be paid to the lending company.
Some companies might offer the loan repayment money as a “signing bonus” for starting a new job, or after a trial period of working. Others may have a series of criteria that you have to complete before receiving any money, depending on the career field.
Some employers have even tied these loan payments to retirement savings, allowing students to make payments on their own loans in exchange for the company contributing towards your retirement out of their own pocket. A few companies let employees apply their unused vacation time or sick days toward student loans.
More promising employer repayment programs might include higher lifetime caps, such as $10,000. While the average cost of a student loan is over $37,000, paying almost one-third of the total balance is a great start towards building a lifelong working relationship with a model employee.
While plenty has been written about debt repayment assistance programs as a means of employee retention, there are also other benefits – like attracting higher-quality job applicants in the first place.
Companies that want workers with college degrees now have a way to attract those workers with promises of paying off part of their student debt.
Employers Aren’t the Only Resource
While employer-paid repayment gifts are great, they’re simply not enough to grab a student by the hand and pull him out of debt entirely. With some educational degrees costing closer to $100,000 than $30,000, a student might wonder if getting that dream job is really going to be worth it.
It might be – if a student can take advantage of other resources of payment.
If a student gets a job in a specific field and with an employer that meets the criteria, some federal loans can be forgiven. Teachers who work in a low-income school for at least five years might qualify for the Teacher Loan Forgiveness Program.
Another option to pursue is that of income-driven repayment programs, managed by government offices, which can help if your loan payments are higher than your income.
The Loan Refinancing Option
Another option would be for an employer to invest in an employee’s future through private student refinance plans. For example, a company might help a new worker qualify for a refinance loan that they wouldn’t be able to get on their own.
Refinancing plans can lower interest rates, consolidate multiple student loans, and change the repayment period for a longer or shorter contract. The company might even donate some money to the new loan balance, along with added member benefits.
Some of these additional benefits could include continuing education and webinar programs, such as described on our resources page. After all, earning a degree is only part of the job description.
Many companies look forward to hiring students with valuable skill sets, and experience in sales or customer service, and management.
Employers Working with Private Lenders
Progressive companies can also find vendors that work with employers and help them create student loan repayment benefits that won’t tax their resources, or those of the student.
The company may pay the vendor an implementation fee, or charge the employees a monthly fee for instituting the arrangement.
Refinancing may require that the student have a fairly high credit score and stable means of income, not to mention working towards a valuable degree.
A company cannot co-sign for a refinancing program, but a parent, friend, or trusted individual could co-sign with a student in case their credit score was too low to qualify.
It’s also worth thinking about whether the company is investing in you for the future, especially if they get involved in paying off part of your loan or refinancing it.
Staying on top of your other monthly bills is important for keeping your job and making loan payments because employers will check your credit score and hold you to this contract.
Warning: Private Lender and Federal Assistance Conflicts
Be aware that if you or your employer decide to pursue private lending assistance, you may disqualify federal loan programs. Consider applying for federal help first, and if all avenues are exhausted, then concentrate on private lending refinancing.
The Future of Student Loans Beyond 2022
Remember, even if your employer doesn’t have any repayment assistance at the moment, you might consider bringing it up to HR, or to the owner/manager directly, especially if they encourage employees to bring new ideas to management to consider.
Times are changing and the employer-guided student loan repayment plan is becoming a serious prospect. Even in Washington D.C. today, many lawmakers and activists are talking about what else the government can do to address massive student debt in the U.S.
Recently, President Biden announced that 40,000 borrowers would get “Immediate Debt Cancellation.”
Similarly, the Education Department announced loan forgiveness of over 110,000 workers in certain public service fields, which amounts to $6.8 billion in total loan forgiveness. Read more about how to apply for loan forgiveness before the deadline.
One could argue this is more than just a business trend. This may be representative of a changing culture and a new way of bringing millennials back to the workforce. Whatever works is a good strategy, especially in an age where the old rules no longer apply.
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