Benefit Talk: Could Student Loan Repayment Become the New 401(k)?
An already growing trend for employers to help repay their workers' student loans could become a more common benefit if two bills supported by the Society for Human Resource Management become law.
The emerging practice of employers helping their workers pay off student loans may soon get a major boost, courtesy of a pair of bills sitting before Congress.
The Employer Participation in Repayment Act, introduced by Sen. Mark Warner (D-VA) in January, and the Employer Participation in Student Loan Assistance Act, introduced in the House last year by Rep. Rodney Davis (R-IL), would alter the tax code to allow employers to contribute up to $5,250 per year, pretax, to help workers pay down student loans.
The bills, supported by the Society for Human Resource Management, could make employer-led student-loan repayments as common as the 401(k), and that change would benefit both businesses and employees, proponents say. Companies would be better able to recruit and retain good people, and employees would have an easier time repaying the average $35,000 in student debt they’re carrying.
What would the government get out of losing tax revenue by turning student loan repayment into an employee benefit? Ashley Phelps, Davis’ communications director, suggested in comments to Bloomberg Business that the approach would help offset student loan defaults.
“We’re looking at this as a longer-term solution,” Phelps said. “If you don’t have this debt, then you don’t have as many at-risk borrowers that could default on their student loans.”
Even without legislation, employer assistance with student loan repayment has been gaining steam in recent months, with companies such as PriceWaterhouseCoopers embracing the trend. A number of companies are also eyeing it as a pilot program. As Bloomberg Business reports, the 401(k) took hold thanks to a single company introducing it as an option for its employees in 1980.
Uptake is currently modest: SHRM’s 2015 benefit survey found that just 3 percent of respondents offer to help repay student loans. Bruce Elliott, the association’s manager of compensation and benefits, told Employee Benefit News that he considers the perk a smart one for businesses to invest in.
“I often get asked why employers don’t just increase base salary instead of going to the trouble of paying down student loans,” Elliott stated. “The answer is that for the dollars spent, student loan repayment is much more likely to enhance employee engagement and productivity.”