4 Things You Need to Know About Employer Student Loan Repayment

March 23, 2016

Connect Member

Writer at Credible, an online marketplace for student loan refinancing.

credible.com

Forget unlimited time off, paid paternity leave, or getting comped for all your meals: Having your employer help repay your student loans is the hot new employee benefit in town. But what is it? And how can you take advantage of this benefit? Here are the four most important things that you need to know.

What Is It?
Generally speaking, it involves an agreement between you and your employer, whereby your employer agrees to pay off a specific amount of your student loan, or to reimburse you for that specific amount. PricewaterhouseCoopers, for example, is offering $1,200 a year in student loan repayment assistance for up to six years to help new and existing employees pay down student loan debt.

In a survey from March of 2015, only about three percent of employers said they offered student loan repayment as a perk. But if your employer isn’t one of them, don’t despair. As companies compete for talented graduates who have student loan debt, it’s likely that more will offer a loan repayment benefit in the future.

Typically, only full-time employees or employees who have worked at the company for a specified amount of time are eligible for these loan repayment plans. Additionally, you should determine whether your employer’s plan will cover all types of student loans or only specific types. You should be sure to speak to your company’s human resources department to find out whether your employer is willing to offer you this benefit.

How Much Can I Save?
The value of this perk is not only the amount that your employer contributes, but also the potential savings from reduced interest payments. The amount of those savings will depend on how much student loan debt you have.

A recent analysis by NerdWallet concluded that a recent graduate who was holding a bachelor’s degree and paying down $29,400 in student loan debt could save $4,121 in interest payments over the lifetime of her loan, if she were able to enroll in an employer benefit plan that provided $167 per month in additional student loan payments over a five-year period.

An MBA-holder with $52,805 in student loan debt who is enrolling in the same program could expect to save $5,039 in interest payments, while a law school graduate with $147,535 in student loan debt would save $5,329.

What’s interesting about the NerdWallet study is that the value of employer-provided student loan assistance can be even more dramatic if you’re also able to refinance your student loans at a lower interest rate. NerdWallet estimates that the same MBA-holder would save $7,181 by taking advantage of the tandem benefit of an employer contribution and refinancing. The law school graduate enrolled in the employer benefit plan who also refinances stands to save a total of $13,017 in interest payments, NerdWallet found.

Keep in mind that if you refinance federal student loans with a private lender to take advantage of lower interest rates, you can lose borrower benefits including access to income-based repayment programs and loan forgiveness.

If you want to see how much you might save by refinancing your student loan debt, Credible’s prequalification tool lets you compare offers from multiple, vetted lenders. Requesting prequalified offers takes about two minutes and does not affect your credit score.

Tax Consequences
It’s important to keep in mind that while having your employer help you pay down your student loans can be a valuable perk, this benefit is not tax-free. According to the IRS, if you receive educational assistance benefits from your employer — reimbursement of tuition expenses, for example — you can exclude up to $5,250 of those benefits each year, meaning that you don't have to claim them as income on your tax return. However, student loan reimbursements are considered taxable income — unless you receive student loan repayment assistance through any of the following:

  • The National Health Service Corps (NHSC) Loan Repayment Program
  • A state education loan repayment program eligible for funds under the Public Health Service Act
  • Any other state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health services in underserved or health professional shortage areas (as determined by such state)

What Else Do I Need to Know?
Legislation introduced last year by Rep. Scott Peters, a Democrat from San Diego, California, would make repaying student loans more like contributing to your 401(k). If passed, the Student Loan Repayment Assistance Act would allow employees to pay down student loan debt with pre-tax dollars when their employer makes a matching contribution. HR 1713 would limit the amount of such a deduction to $6,000 in a taxable year and $50,000 over a lifetime. The bill would be costly, and its prospects in the Republican-controlled Congress are uncertain — it has only 11 co-sponsors, all Democrats.

A more recent bill, the Employer Participation in Student Loan Assistance Act, would take a slightly different approach, treating payments made by employers to pay down student loan debt just like employer-provided tuition benefits. HR 3861, which has nine Democratic and 11 Republican co-sponsors, would allow employers to pay down up to $5,250 in student loan debt per year without tax consequences for employees receiving the benefit. Although the bill would not allow employees to pay down their student loans with pre-tax dollars, it does have bipartisan support — meaning it’s more likely to pass than HR 1713.

Ariha Setalvad is a member of the DailyWorth Connect program. Read more about the program here.

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