Amid the economic slowdown brought on by coronavirus, employer-paid student loan benefits now provide tax advantages that can help both employers and employees weather the storm. College students currently accruing debt are also more likely to apply for jobs that offer student loan benefits, making it easier for companies with these benefits to recruit top talent.
Almost 9 in 10 (89%) undergraduates think more companies’ benefit packages should include helping employees pay off their student loans. What’s more, nearly 6 in 10 (57%) students who expect to graduate with debt say that a company offering student loan repayment would be a major factor into their decision about applying, while 40% say it would be a minor factor. Only 4% say it would not be a factor at all.
Although student loan benefits are fairly new, some U.S. companies already offer various programs. Eligible Fidelity employees, for example, can receive up to $2,000 per year toward their student loans, with a lifetime maximum of $10,000. Estée Lauder Companies offers employees a monthly subsidy toward their loans, which also caps at $10,000, once they’ve been with the company for a year.
The coronavirus stimulus package signed by the president in March now makes these programs more beneficial for employers. Through the end of 2020, employers can contribute up to $5,250 toward an employee’s student loans without that money counting as part of the employee’s income. The CARES Act states that a “payment by an employer, whether paid to the employee or to a lender, of principal or interest on any qualified education loan” will be excluded from both income and payroll taxes.
As companies across industries cut employee salaries to avoid layoffs, the stimulus package’s student loan benefit offers a tax break for employers looking to make smaller cuts. For companies actively hiring, this could mean lowering salary offers for new hires and providing help with student loan payments. And for companies with hiring freezes that need to save money through the end of the year, this could mean coupling small salary cuts with a student loan repayment program.
Most employers pay 7.65% in payroll taxes, meaning that providing the full amount of $5,250 would save roughly $402 per employee. If applied to 1,000 workers, the company would save almost $402,000. Now let’s say a company provides $1,200 for each employee through 2020. That would amount to about $92 saved per employee and almost $92,000 over 1,000 workers.
“Providing a tax subsidy for employer student loan repayment doesn’t just benefit individual workers, it will help reduce a major drag on the overall economy as we recover from the COVID-19 shock,” Tuition.io CEO Scott Thompson told Inside Higher Ed. “Even if only temporary, this groundbreaking legislation will enable companies large and small to help America’s working people make it through this historical crisis.”
Because this student loan tax relief is currently temporary, organizations that want to take advantage must act fast.
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