The rise in student loan debt for most of the US employees, their spouses and children has become a great hurdle in the way of their saving for future. It is making workers choose between paying off their student loan and investing in other future financial goals. Workers are increasingly preferring to pay back their student loan debt rather than saving for retirement.
Since the year 2015 a number of companies have been initiating student loan help to make payments on their employees’ student loans. By including student-loan payments as employee benefit employers are hoping that it will be a good recruiting and retention tool, considering the large population of college students graduating with student debt these days.
This endeavour by employers can prove to be a great success as young workers are responding more positively to the loan help than retirement benefits or other perks. Pending federal legislation could make the benefit even easier to offer by providing tax breaks on the contribution, or allowing employer payments to be made entirely tax-free up to a certain limit.
However, there can be a debate on these benefits. Wouldn’t it be better for workers to look for higher pays than to get student loan benefits? With higher pays they will be able to pay off their loans easier and will be in a better financial condition. They will be in the position to save enough for retirement as well. Unlike other benefits, money to help repay student loans is taxable income. Though congress is making efforts to make these benefits tax free, recipients of such benefit will have to pay taxes on these benefits for now. Besides, some employers cap the amount they provide as student loan help, and the benefit ultimately runs out as soon as you pay off your debt.
On the contrary if you look at previous records, even high paid professionals have been struggling to pay their student loans. Either because the loan amount is too high or their lifestyle is not allowing them to save enough to pay off their loans. Even if they are making enough money, financial conditions may not always remain the same. In cases of financial hardship something like student loan benefit can only help. That is why fresh graduates are lured by these benefits. According to a survey from Iontuition more than half of current students and recent college graduates with student loans said they would rather receive an offer of loan help than a health plan. Nearly half of those surveyed also said they would rather have student loan help than a 401(k). Moreover, a new bill introduced by senator of Virginia, Mark Warner in January 2016 would allow employers to put as much as $5,500 a year pretax toward their employees’ student loans. By the end of year 2015 only 3% of the companies were providing such benefits, but if the bill passes these benefits would become more common.
Independent of the intentions and motivations of corporations behind introduction of such benefits, if they help borrowers reduce their financial burden, student loan help benefit can be considered a viable option, depending upon the situation of the borrower.