A Deep Dive Into Student Loan Repayment Assistance

Student loans are back in the headlines with the announcement of targeted loan cancelation. With so much change on the horizon, you may be wondering how the new plans for student loan repayment impact Student Loan Repayment Assistance (SLRA). Is it still something employees need or want? Is it still a benefit employers should pursue?

Let’s take a refreshed look at the basics of SLRA, as well as some of the most recent data and most compelling reasons why adding an SLRA perk to your benefits package is as important as ever.

What is Student Loan Repayment Assistance (SLRA)?
SLRA
 is one of the fastest growing benefits to help employers recruit and retain top talent. Employers realize student loan debt is a burden to employees. By addressing it, they’re proving they can support employees while also achieving business goals. However, SLRA’s newness and employers’ unfamiliarity with its legislation has resulted in misunderstandings about how SLRA works.

Repayment assistance can include multiple points of support. Employers can offer expert loan counseling, a refinancing referral program, or make supplemental contributions to a 401k. In this article, we're focusing on an employer contribution toward an employee's outstanding student loan balance.

Why is SLRA one of the fastest growing non-health benefits?
Since the onset of the COVID-19 health crisis, the concept of work-life balance has changed dramatically and the dynamic between employees and employers has shifted. Workers feel more stressed than ever before, but also more empowered. This combination fueled The Great Resignation and also supported a renewed focus on the “Whole Employee” model of holistic wellness programs and supplemental benefits, like SLRA.

  • It's a win-win for employers seeking to build and maintain the highest quality team, and a stressrelieving perk for employees who have student loan debt.

  • Offering SLRA means employers can compete for and retain a quality workforce and improve productivity and engagement levels. - 55% of job seekers turned down a job at least one to three times due to dissatisfaction with benefits. - 88% say they would increase their commitment to their employer if offered SLRA.

  • Employees will feel less financial stress, more easily reach financial goals, and be able to save for retirement.

  • Payments, up to $5,250 annually, are tax-free within the context of an Education Assistance Program, meaning they do not qualify as taxable income to the employee nor as a taxable expenditure to the employer.

  • After months of rapid wage growth, salaries are stabilizing and attention is shifting from attracting talent to retaining it. Employee benefits are becoming a key focal point for differentiation.

How many employers are offering this kind of program?
According to the Society of Human Resource Management (SHRM), SLRA was offered by 7% of U.S. organizations at the start of 2022, down from 8% in 2020, according to their 2022 Employee Benefits Survey, which drew responses from 3,129 Human Resources (HR) professionals. This decline is likely in response to the repayment pause and the push for an overarching student loan forgiveness proposal.

Now, those variables are more clear — a targeted debt cancelation plan has been announced, as well as an end date for the repayment pause. It’s the perfect time to create a program that supports employees and job seekers who still have debt and are concerned with balancing their budget.

Aren’t student loan payments currently on hold?
Yes, student loan payments on most federal loans have been on pause since March 2020. The payment suspension was implemented through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and extended through multiple executive actions. The most recent order extends the payment freeze through Dec. 31, 2022. Additionally, most of the affected student loans have a temporary 0% interest rate.

However, it’s important to remember that the hold is temporary, and payments may still be made during the pause, making it an excellent time to take advantage of principal-only payments. Once payments resume after an almost three-year pause, it will be challenging for many borrowers to restart repayment, especially considering 90% of borrowers haven’t made a payment during that time. Adding inflation to the mix makes restarting repayment all the more difficult. An SLRA benefit can help ease your employees’ financial burdens, reduce stress and boost morale — all of which contribute to increased employee retention and attraction.

Why make payments if they've been suspended?
While payments aren’t required and no interest is accruing on most federal loans, the suspension does not apply to private or all loan types. Moreover, even when payments are suspended, payments that ARE being made are making a huge difference. Student loan balances are reducing more quickly. Loan servicers are applying the full payment amount to the principal balance (after any interest that accrued prior to March 13, 2020 is paid). It's an incredible opportunity for employees to reduce their loan balance and the amount of long-term interest paid on the debt.

The U.S. Department of Education just announced targeted debt cancelation — how will this affect SLRA going forward?
On Aug. 24, 2022, the U.S. Department of Education (ED) announced targeted student debt cancelation to borrowers with federally-held loans. This measure does not eliminate all student loan debt, and it also does not apply to all loan types. Plus, the average student now graduates with around $30,000 in student loan debt, which would not be fully eliminated by the $10,000 in forgiveness offered in this proposal. This means that many students loan borrowers would still benefit from student loan paydown. Student loan forgiveness is a great help for borrowers with lower debt balances, but many in the workforce have higher debt loads, especially those with advanced degrees. In this competitive job market, employers can’t afford to lose top talent, since it may take months to fill a lost position. The key to attracting and keeping the best employees is to address the concerns that other employers don’t — peace of mind through SLRA.

How do I know if implementing an SLRA benefit will help my company save money and reduce turnover?
If the fact that 80% of millennials would strongly consider a job with a student loan repayment benefit over one without it isn’t enough to convince you, we’ve got you covered. Attigo offers a free SLRA ROI Calculator that can help you determine turnover cost with and without SLRA, total SLRA contribution and fees and turnover reduction.

Additionally, when it comes to SLRA, the question isn’t if you can afford to offer it — it’s whether you can afford not to. SLRA easily pays for itself when you calculate that losing an employee costs 1.5-2 times their salary due to decreased team productivity, recruitment costs, new employee training and hidden costs like reduced morale.

When did employer-made student loan payments become tax-free?
The opportunity for an employer to make a tax-free payment toward employees’ student loans started with the CARES Act. The legislation included a temporary provision permitting employers to amend Education Assistance Programs and pay up to $5,250 per year on a tax-free basis toward an employee’s loans.

On Dec. 27, 2020, the Consolidated Appropriations Act, 2021 (CAA) was passed by Congress and signed by the President. One of its provisions (in Section 120 of Division EE) was to extend the tax-free advantage of employer payments, up to $5,250 per year, through January 1, 2026. The CAA continued what the CARES Act started, affirming that SLRAs are here to stay (at least for the next 5 years).

The CARES Act expanded the scope of Sec. 127 of the Internal Revenue Code, which addresses employer-paid tuition benefits. The Cares Act stipulated that the $5,250 amount that employers can annually contribute tax-free for tuition assistance can be extended to student loan repayment assistance. According to Employment Law Worldview, an employer can “pay for all or part of an employee’s Qualified Education Loan as a tax-free benefit, provided that benefit is part of an employer’s education assistance program.” The $5,250 cap is now the combined annual limit for education assistance payments–whether for tuition or student loan repayment.

What is a Qualified Education Loan for this purpose?
Both private and federal education loans obtained to pay for specific higher education expenses — including tuition, fees, room and board, books, supplies and other necessary expenses — are covered.

How do employers take advantage of this new law?
Sec. 127 requirements include:

  1. The program must be a separate written plan of the employer for the exclusive benefit of its employees to provide such employees with educational assistance. Notably, the CARES Act does not provide an exception to this rule, so employers might consider adopting a written educational assistance plan or amending their existing written educational assistance plan to incorporate this student loan payment benefit before taking advantage of Section 2206.

  2. The program must benefit employees who qualify under a classification set up by the employer that is not discriminatory in favor of highly compensated employees.

  3. No more than 5% of amounts paid by the employer for educational assistance during the year can be provided for individuals who own more than 5% of the stock or capital profits interest in the employer.

  4. The program cannot provide eligible employees with a choice between educational assistance and other remuneration included in gross income

  5. Reasonable notification of the availability and terms of the program must be provided to eligible employees.

If your company doesn’t have an Education Assistance Program, organizations like SHRM can provide guidance and resources to help you design and manage an educational assistance program. When you're ready to introduce SLRA to your employees, we encourage you to find a comprehensive solution to help you reap the rewards of adding this program to your arsenal of benefits.

How does SLRA impact borrowers in an Income Driven Repayment Program?
Student loan borrowers who are using an Income Driven Repayment (IDR) plan are subject to annual evaluation of their Adjusted Gross Income (AGI) per their federal tax return. Most IDR payment options (e.g., REPAYE, PAYE and IBR) establish a monthly payment that is a percent of the borrower’s discretionary income. If the employer’s payment is part of an eligible education assistance program and is not taxable, then it will not be included in the AGI and not impact the borrower’s monthly payment.

What impact would SLRA have on borrowers who are pursuing Public Service Loan Forgiveness?
People enrolled in Income Driven Repayment (IDR) must meet specific criteria. They must make 120 qualifying monthly payments while working full-time (at least 30 hours per week) for a qualifying employer. Most qualifying PSLF repayment plans are based on income. Some borrowers working for PSLF-eligible employers in higher-earning positions (e.g., healthcare) won't qualify for IDR payments that are less than a standard payment. Employers can use SLRA to help these borrowers pay off their loans.

How does the SECURE Act 2.0 tie into SLRA?
The SECURE Act 2.0 legislation, which may pass some time after the 2022 mid-term elections, provides opportunities for employees to pay off student debt and save for retirement by allowing their employer to contribute to their retirement account in the amount they are paying towards their student loans. This means employers can take advantage of SLRA to help employees tackle their student loan payments today without sacrificing retirement contributions that will help with their future.


 Patrick S. Ziegler, Regional Director – Attigo® Suite, Ascendium, [email protected]
Find additional resources on our Student Loan Repayment Benefit page.

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