More companies plan to help employees pay off their student loans.
As far as employer benefits packages go, health insurance and 401(k) match programs used to be king. After the end of the pension era, health coverage and retirement match programs became the top perks for skilled workers. But with the ever-increasing burden of student loans, that may be about to change. More and more, companies are considering whether to offer a student loan benefits program. And with match incentives, student loan repayment program could become the new 401(k).
How does a student loan benefits program work?
In essence, a student loan benefits program simply means that your employer agrees to pay a portion of your loans. Some of these programs work similarly to 401(k) match programs. You pay a certain amount and your employer matches a certain amount in return. For instance, a logistics company known as Choptank Transport recently instituted student loan match payments for employees. The Maryland-based company matches employee student loan payments up to $1,500 per year.
That’s a significant benefit, particularly for 20-somethings who – by and large – don’t have major health concerns and may not feel the need to start saving for retirement.
“Student loan debt places a significant burden on young workers,” explains Gary Herman, President of Consolidated Credit. “With average debt over $35,000 for recent graduates, borrowers are facing serious life delays. More than retirement assistance and healthcare costs, they need assistance for the financial challenge they face here and now.”
Tax reform could make this even more beneficial
The current Republican proposed tax cuts aim at giving a financial break to the middle class. But experts warn that the cuts may come at the cost of some vital deductions that low and middle income households rely on. This includes the deduction for student loan interest.
Under the current system, student loan borrowers can deduct the full value of the interest charges that they paid on their loans each year. This means either more money back on your tax refund or that you can withhold less from each paycheck. In either case, it boosts your cash flow.
If tax reform passes in its current form, that deduction will disappear. Although your student loan payments will still be the same, the financial burden will be greater.
“Without the student loan interest rate deduction, borrowers will face even great financial challenges in paying off their loans,” Herman says. “This could make a student loan benefits program the best workplace perk to attract the best and brightest workers to a company.”