Millions of employees enter the workforce with student loan debt each year. Modern companies face immense competition and are looking to attract and retain top talent.
This has given rise to a new type of employee benefit, loan repayment assistance, where some companies are willing to help employees repay their student loans.
What Are Loan Repayment Assistance Programs?
Loan Repayment Assistance Programs, or LRAPs, involve employers helping employees repay their student loans. This typically includes a monthly or annual contribution. There may also be a maximum lifetime value, such as a $10,000 aggregate limit.
While employer LRAPs may not eliminate student loan debt completely, they can help borrowers pay down their student loan debt more quickly.
Student Loan Repayment Structures
Benefit structures can vary according to the amount and duration of the employer contribution. Here are some examples of the different LRAP structures some companies are using.
- Staples. Employees receive $100 for 36 months to repay student loans, up to $3,600 total.
- Penguin Random House. Employees receive $100 per month for up to 7.5 years, up to $9,000 total.
- Fidelity Investments. Employees receive $2,000 per year with a $10,000 lifetime maximum.
Many student repayments max out at around $10,000.
Tax Impact of LRAPs
Employer-paid student loan repayment is a tax-free benefit, at least for now. LRAPs were originally treated as taxable income to the employee, but in March 2020 the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) included a temporary provision to make employer-paid student loan repayment assistance tax-free. The provision was set to expire at the end of 2020, but it was extended through December 31, 2025 with the Consolidated Appropriations Act.
As an alternative, some employers provide the loan repayment assistance as a “matching” contribution to the employee’s 401(k) retirement plan. Such contributions are tax-free, but don’t involve a payment from the employer to the lender.
What’s the Employer’s Incentive?
Why would an employer willingly spend such a large amount of money to repay your student loans? It boils down to two main things — attracting and retaining top talent.
Competition is fierce between modern businesses. Companies need to distinguish themselves from competitors to acquire the best and brightest employees. One way they do this is by offering robust benefits.
Traditional healthcare, 401(k) and vacation are great, but many recent graduates care more about repaying their student loans than about saving for retirement. Offering a LRAP not only helps employees with their student loans, but also shows them that the employer cares about their concerns.
With millions of people entering the workforce feeling the financial pressure, LRAPs can be very appealing. It might even persuade an employee to choose one company over another.
A CommonBond study found the majority of employees — especially younger ones — were receptive to LRAPs. 78 percent said they would accept a job offer with student loan repayment assistance. 85 percent said they would commit to staying at the job for at least three years.
A survey by American Student Assistance (ASA) reported similar results, finding that 86 percent would commit to a company for five years if the employer helped pay back their students and that 92 percent would be all in on a 401(k)-like company match for student loan repayments.
This proves that this benefit aids in both employee recruiting and retention. But it goes beyond just that.
Worries surrounding student loan debt can be distracting. When employees worry about their finances, the stress can hurt productivity. According to the CommonBound study, 70 percent of workers said an employer helping them with student loan repayment would improve their performance.
Businesses control the terms in a way that encourages employee retention. For instance, Fidelity Investments makes student loan payments monthly rather than annually or as a lump sum signing bonus. If an employee leaves, the company is no longer required to make payments on the employee’s student loans.
Penguin House Random requires an employee to work full-time for one year before receiving help with their student loans. Requirements like these motivate employees to stay longer and discourage turnover.
How Many Employers Offer LRAPs?
Only a small number of U.S. employers currently offer this benefit.
According to a Society for Human Resource Management (SHRM) survey, 4 percent of employers offered LRAPs in 2018, up from 3 percent in 2015.
With the average amount of student loan debt increasing each year, LRAPs will likely become more common. While originally popular among large companies, small businesses will follow suit.
There are also several companies that help facilitate the creation of LRAPs, including BenefitEd (Nelnet), EdAssist (Bright Horizons Family Solutions), Fidelity Investments, Gradifi (E*Trade), Gradvisor, Gusto, IonTuition, LRAP Association, Tuition.io and Vault (formerly Student Loan Genius).
Therefore, you can expect more businesses to adopt this benefit in the near future. It could even go mainstream.
How to Find a Company That Will Repay Your Student Loans
Are you drowning in student loan debt? Are you interested in working for an employer that offers LRAPs?
Here’s a list of some of the hundreds of companies offering student loan repayment assistance as a benefit:
- Connelly Partners
- Credit Suisse
- Estee Lauder
- Fidelity Investments
- First Republic Bank
- Freddie Mac
- Live Nation
- Millennium Trust Company
- Natixis Global Asset Management
- Penguin Random House
Offering key benefits is one way brands reel in top talent. Student loan repayment assistance is an extremely popular benefit at the moment, especially for younger workers.
Companies win because they acquire and retain skilled talent, as well as boost worker performance. Employees win because they slash through student loan debt more quickly.