With student loan debt at an all-time high and no signs of lowering tuition prices, a company offering to repay your student loans as an employee benefit can be very attractive. But how likely is it that your company would be willing to do this or that you might find a job with such an offer? Just how much can an offer like this save you financially, and how exactly does it work? Keep reading to find out.
Employer Student Loan Contributions
When you receive a job offer, it typically comes with a list of employee benefits. Health insurance, retirement savings, and many other perks have become the norm. In recent years, however, an additional perk has been emerging: employer student loan contributions.
That’s right – many employers now offer to make contributions to your student loan payments. As student debt has risen, companies have seized upon this opportunity as a way to attract talented employees. In fact, 78% of people in a recent survey said they would take a job offer that included student loan benefits, while 83% said such benefits would determine how likely they were to stay with a company.
How It Works
Some companies will make student loan payments directly while others choose to go through an intermediary. Many companies have found great business facilitating this benefit and taking care of all of the details, making it easier for both employers and employees.
While most distributions are paid monthly, some companies opt to give their employees an annual disbursement.
Your employer may have specific requirements as well, such as how long you must agree to work with them or that you must be a full-time employee. Further, the benefits may be limited to a maximum monthly amount, as well as a total lifetime benefit. In other words, depending on their particular policy, there is a limit to how much of your student loan debt they will cover.
It’s important to note that any employer contribution to your student loans is considered taxable income. It is most likely that your company will deduct the appropriate taxes from your regular paycheck, but if they don’t, you should be prepared to cover the difference when tax season comes.
Student Loan Contributions vs. Tuition Reimbursement
Many companies also offer tuition reimbursement; you may find it confusing to distinguish this from loan contributions. Both are ways for your employer to pay for your education, but the two are quite different.
Tuition reimbursement is when your company reimburses you for tuition and associated expenses for classes you take while working for them. They often offer this benefit to help you learn what you need to do your job or to help you obtain your degree (which can add to their prestige as well as yours). These payments are made to you after you have paid your tuition and may include stipulations that you have completed or passed the courses first.
Student loan contributions, on the other hand, occur after you’re done attending school and are meant to help you pay off your student loans. The biggest difference between these two benefits comes in the form of taxes. When you pay for your classes and then your company reimburses you, you are able to deduct the tuition expenses from your tax return and your employer doesn’t have to pay taxes on their end, either (up to $5,250, as of 2019). In this way, this employee benefit is not taxed. Student loan contributions are taxed, however.
A Taxed Benefit
You should not let the fact that student loan repayment benefits are taxed deter you. Consider that when you pay your student loans yourself, only the interest portion of the payment is tax-deductible and capped at $2,500 for single filers who make less than $70,000 (as of 2019). The more money you make, the more this benefit is phased out.
Also, while you will be taxed on your employer’s contributions, you should still be able to take the student loan interest deduction on your taxes if you are below the income threshold. In essence, this benefit is really no different than getting paid higher wages, except for the fact that those wages are earmarked for your student loans.
Another thing to keep in mind is that a bill is currently in Congress that would make student loan repayment contributions tax-deductible in the same way tuition reimbursement is. If this passes, then you won’t need to think about the taxes from this benefit at all.
How Much Money Can This Benefit Save?
With the average student loan borrower owing around $30,000 (and much more if graduate school is in the picture), finding a way to pay this sum down quicker can have a significant financial impact.
Typical employer student loan contributions seem to run between $100 and $200 per month depending on the company, and maximum benefits can range from a few thousand dollars up to tens of thousands of dollars.
If your student loan payment is a fixed amount each month, you could choose to simply pay the difference between what your employer pays and what is owed, or you could pay your expected amount and use your employer’s contribution to reduce the principal further. If you do the former, you will simply benefit from the amount the company pays directly.
If you do the latter, however, you could save a lot more. By reducing the principal early, the total interest you pay during the lifetime of the loan will be less. For example, an additional $100 payment per month on a $30,000 10-year loan at 6.8% would save you about $3,500 in interest.
Which Companies Offer This Benefit?
A short list of major employers known to offer this benefit includes the following:
- Estee Lauder
- Fidelity Investments
- First Republic Bank
- Live Nation
- Penguin Random House
The number of companies that offer this benefit has been growing significantly. In fact, as of 2019, 8% of employers offered this benefit, which is double the amount from the previous year.
This number is expected to rise and may do so in a dramatic way if the Employer Participation in Repayment Act of 2019 is passed, especially when you consider the fact that over half of all employers already offer the tax-deductible tuition reimbursement benefit.
What If My Company Doesn’t Offer This Benefit?
With more companies offering this benefit, there is a very real possibility that yours will at some point, too. It may also be the case that your company isn’t aware of this as an enticement for employees and that talking to your manager or someone else in charge can make them aware.
Some workplaces have suggestion boxes or employee surveys, which are both good ways to bring up this idea. If you can convince your company that offering this benefit would be in their best interest, then that will make it harder for them to say no.
Don’t be afraid to bring this incentive up in contract negotiations, as well. If you are negotiating for a raise, for example, you can throw this idea on the table for consideration at that time. If you have received a job offer from another company that is offering this benefit, this can also be used as leverage.
Other Jobs That Can Help With Student Loans
There are several programs in place for student loan forgiveness for people who work in certain fields. Even if your employer does not offer the benefit of student loan repayment, it’s possible that the nature of your job itself makes you eligible for something similar.
- Public service loan forgiveness is available for borrowers of Direct Loans who are employed by the government or a nonprofit organization. Under this program, if you make 120 monthly payments while working full time, the remainder of your loan will be forgiven.
- If you are a full-time teacher working in a low-income school for five consecutive years, you may be eligible to have up to $17,500 of your Direct Loan or FFEL Program loans forgiven.
Getting Out of Student Loan Debt
Regardless of whether your company offers employer student loan contributions, there are many other ways to work toward getting out of debt and paying off what you borrowed for college. For any and all questions related to your student loans and debt repayment options, check out our most recent articles and guides at CollegeFinance.