Employers typically give bonus paychecks to recognize employee contributions, honor work anniversaries, celebrate holidays, or as a signing bonus for new hires. While employees appreciate these paycheck perks, there is a new trend emerging. Due to rising higher education costs and extensive college debts, many employees want help paying off their student loans.
Here are four reasons to offer student loan assistance as an employee benefit.
- Benefit vs. bonus – Employers spend millions every year on employee bonuses. Under the United States tax law, bonus paychecks, awards, gifts and gift cards that are given to employees usually are taxable. The only exception is a random gift to employees.
Student loan assistance benefit
Many employers are concerned about the heavy student loan debts employees are carrying. They recognize that several generations of employees working for them have student loan debts. Some employers have given workers a bonus check marked as a payment for their student loans, but this amount could be taxable.
Employers may worry that offering a bonus payment for student loans is not an equitable option for all employees. This is one reason why a student loan assistance benefit is a popular option for employers. BenefitEd can be included as an optional benefit in employee packages. Since BenefitEd is a qualified educational assistance program, employers can designate up to $5,250 for each participating employee during a calendar year.
529 savings plan
Employees without student loans can set up a college 529 savings plan through BenefitEd, to save for tuition costs for their kids or grandkids. Many middle-aged and older workers are helping cover their kids’ college costs. Often, it’s because their kids have borrowed the maximum student loan amount available.
- Ease financial worries – Employees are stressed over their finances, which can affect their work performance. They report spending several hours during the workday worrying about how to pay off loans and afford normal life experiences, such as starting a family or buying a home. For many workers, their student loan debt payment is equivalent to the cost of a home mortgage.
Employees report that receiving assistance for repaying student loans helps relieve financial worries and allows them to focus on their work. Employers also are providing financial well-being programs to educate employees on how to make financial investments or set up a budget.
- Keep employees engaged – Today’s employees continually are looking for new job opportunities. Research indicates that new hires search for a different position within a year or two, or sooner if the job doesn’t help them accomplish their career goals. In most industries, turnover rates are between 12 to 15 percent. In specialized fields, the turnover rate can exceed 20 percent.
One way to keep employees on the job is to offer a student loan assistance benefit. An American Student Assistance survey found that 86 percent of employees aged 22 to 33 would commit to working for an employer for at least five years if they received help to pay off college loans.
In addition to offering a student loan assistance benefit, some employers reward current employees for their contributions and for staying with the company by making an additional contribution toward their student loan debt.
- Attract talented workers – Competition for talented workers is fierce, especially in some specialized industries. Employees expect a competitive salary, as well as innovative benefit choices that address their needs. Student loan assistance is one of those benefits that employees want. In fact, 84 percent of employees want to work for an employer that offers this benefit. A Millennial Personal Finance survey of recent college graduates found that 23 percent would give up health benefits for assistance in paying student loans. More than 50 percent said they would be willing to take a salary cut if that same amount was contributed toward their student loan debt.
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