Employer Student Loan Repayments
Recently, I stumbled upon this article in the NYTimes about a rise in student debt payments by employers as a benefit to attract talent. As a result, it prompted me to write this post about a similar benefit we have had for years at Access Ventures – a benefit more employers should really consider. Wanting to back it with more current data, I began to research a bit and was shocked to learn several things.
First and foremost, being a 501c3, anyone that works at AV is eligible for public service loan forgiveness (PSLF) after 120 qualifying payments. If you work for a government entity or a non-profit, definitely check it out. However, we found the process cumbersome and also 10 years out from debt relief.
We started exploring this as a benefit back in 2016 when we made an investment in Vault (formerly Student Loan Genius) through our financial inclusion partnership with Village Capital. At the time, we were interested in technology solutions that supported greater access and agency for everyday people. So much had changed in finance since the housing crisis in 2008 and student debt was a massive concern for millions of people. At the time, I was on the Community Advisory Committee of the St Louis Federal Reserve and I remember a conversation with President James Bullard in which he mentioned the student debt crisis was not yet an economic crisis. He clarified his comment that though the amount is staggering, in the macro-economic climate, it was not at a significant enough level to concern the federal reserve.
At $1.73 trillion and counting…I still contend that we have a major crisis that will delay wealth accumulation vital to long-term success and inter-generational stability for millions of Americans. When forty-three million Americans have student loan debt — that’s one in 8 Americans (12.9%); and, the average U.S. household owes $57,520 in student debt (according to NerdWallet)…we have a major problem.
Vault (Student Loan Genius) had it’s origins because the founder had graduated college, gotten a great job in corporate America and quickly learned that the standard benefit of a 401k match he couldn’t participate in because of the student loan payments he had to make. Then, as we dug a little deeper, Tony realized he was not alone and that many businesses that offer a 401k match have millions every year unused by their employees (for various reasons). He wanted to know why a person could have more options for that benefit – a benefit that is tax free. Yet, as of 2019, only 8% of companies offered student loan repayment assistance!
Therefore, since 2016….Access Ventures has done just that! We had always matched up to 6% into a team members 401k…now, you could choose. You could elect a student debt match, 401k match, or even tuition assistance if you desired more education. You could also split the amounts if you wanted up to the 6% match amount. Since 2016, we have helped 3 team members payoff their student debt and in one situation, that was over $10,000+ in money towards their student loans!
The crazy thing…for us this has always been a taxable fringe benefit (unlike a 401k match). Yet…it was still a great way to provide options to our team members – given each of their circumstances was unique. We always hoped that over time, Congress would act to do something…then, as I researched for this post, I found that…
In addition to establishing the Paycheck Protection Program and Employee Retention Credit, the CARES Act made employer student loan repayments tax-free until the end of 2020. And in December 2020, the Consolidated Appropriations Act extended the tax-free program through December 2025. – via patriotsoftware.com
Employers can make tax-free student loan payments until December 31, 2025, unless future legislation extends the deadline. You can give each employee up to $5,250 per year toward student loan payments – but keep in mind that this amount is the combined limit for loan repayment and other types of education assistance under Section 127 of the Internal Revenue Code.
If you are an employer…now is definitely the time to make this a benefit within your company. If you are an employee…ask your company about offering this (even if you don’t have student debt – many others do!). And let’s work hard to make this permanent!