Two benefits HR can consider to support employees with student loan debt

Bills that many Americans had been dreading finally came due in October, as student loan payments resumed after a more than three-year pause.

There are over 44 million student loan borrowers in the US, and while those who don’t make payments right away are protected from default for another year, the interest on their loans will begin accruing again.

So far, the Biden administration has erased $127 billion worth of student loan debt for some 3.6 million borrowers; a plan to cancel more than $400 billion in debt was struck down by the Supreme Court. Overall, borrowers hold about $1.6 trillion in outstanding student loan debt.

Absent more comprehensive legislation, some employers are stepping in to support workers with student loan debt. There are two pandemic-era policies, in particular, that HR pros can look into as payments resume.

Offering student loan repayments. The CARES Act, a stimulus bill passed during the first month of the Covid-19 pandemic, contains a provision that allows employers to contribute up to $5,250, tax-free, toward their employees’ student loan debt.

The provision was added by amending a section of the Internal Revenue Code that allows employers to contribute this same tax-free amount as a form of tuition assistance. Prior to the pandemic, only about 4% of employers offered student loan repayment assistance benefits, but in 2020 the share jumped to 8.4%, according to Morgan Stanley at Work.

The tax benefit is set to expire in 2026, so employers who want to offer direct repayment assistance should think “about taking action sooner rather than later,” said Brian Gilmore, VP at Commonwealth, a non-profit organization focused on financial security and wealth-building.

Highway Benefits is currently working with employers including Method and Pando—both fintech firms—on direct student loan assistance, co-founder of the employee benefits platform Mick MacLaverty told HR Brew. Even as some HR departments are tightening their compensation budgets, he argued they can make the case to their CFO that this assistance is a “cost-effective, dollar-efficient way to compensate our employees, while simultaneously attacking their biggest liabilities.”

Match employees’ student loan payments to their retirement plans. Starting in 2024, employers will be able to make matching contributions to employees’ retirement accounts based on their student loan payments. If an employee pays down $400 worth of student loan debt one month, for example, their employer may treat it as though they deferred $400 from their paycheck into a retirement account, and make a matching contribution toward a 401(k), 403(b), or IRA account. The provision is part of the SECURE Act 2.0 passed in 2022.

Given the provision doesn’t take effect until next year, this benefit is less common than direct repayment assistance, but student loan providers are already building systems to support employees who want to take advantage of it, Gilmore said.

The medical device and healthcare firm Abbott Laboratories has had a program in place since 2018 that allows employees to divert the 2% minimum contribution they’d normally make to retirement in order to pay off student loans. In exchange, the Chicago-based company contributes 5% to their retirement accounts (they received permission to launch the benefit through a private ruling from the IRS).

Measuring what matters. Whatever type of benefits HR teams land on to support employees with student loan debt, Gilmore stressed it’s important to measure the efficacy of the benefits to ensure they’re reaching the workers who need them most.

“Employees are navigating a complex world of mandatory and voluntary benefits,” he said. “From our experience, we know that clear communication and ease of access to those benefits is critical.”