Excessive student debt is a growing trend in America. In 2020, 47 million Americans owed a collective $1.7 trillion in student loan debt, a number that continues to rise every year. With student debt at an all-time high, the financial pressures faced by many young Americans are a major contributing factor to the types of career and job choices they make.
Coronavirus Stimulus Package Aids Employer-Based Student Loan Repayment
For many young people in America, figuring out how to repay student debt is an ongoing dilemma that persists well into older adulthood. Fortunately, many working graduates stand to benefit from the recent coronavirus stimulus package. As a provision within this stimulus package, Congress decided to extend the deadline on a piece of legislature, which allows businesses to contribute up to $5,520 per year towards their employees’ student loans.
Any amount employers contribute to their employees’ loan repayment up to and matching $5,250 is treated as a tax-deductible business expense. This new legislation allows employers to help pay their employees’ student loans without taxation of the employer portion, similar to a 401K match. Any loan payment contributions made by an employer are also excluded from the employees’ income tax responsibility, making this a significant win for employees and employers alike.
What Is the CARES Act?
As the parent act that includes these extended benefits, the CARES Act was intended to be a short-term way to help American employees. Originally offering tax breaks allowing businesses to make tax-free employee debt contributions, it was originally slated to end in December 2020. However, the deadline was pushed back another five years as part of the recent stimulus. Now, businesses have the option to contribute to student debt on a pre-tax basis until early 2026.
Under the new extension of the CARES Act, employers and employees can avoid federal payroll and income tax on any contributions paid towards interest or principal on all qualified education loans. Private, federal, and refinanced student loans disbursed to the employee for their own education are all eligible. However, loans taken out by or for the employee’s spouse, partner, or child are not eligible.
Student Debt Repayment Is an Important Benefit
In 2020, nearly 70% of college graduates have student debt, at an average of $40,000 in student loans. For most, the full amount of these loans takes approximately 22 years to pay off. As a result, by the age of 30, adults with student loan debt will have less than half the retirement savings of peers who do not have loan debt. In addition, most will likely struggle to pay off their debt for much of their working lives.
With that in mind, it stands to reason that more and more young professionals entering the workforce prefer employers who offer to contribute to student loan payments over almost any other employment benefits. To this point, when asked about what kind of benefits they are looking for in the job space, nearly all young job seekers said they prefer employers that contribute to paying down student debt. Additionally, many would choose this benefit over others like health insurance, paid time off, and 401k match.
It’s no wonder, then, that employer contributions to student loan debt have skyrocketed since the CARES Act began. Large corporations like Starbucks, Walmart, and Peloton are offering this benefit already. Even more businesses, both large and small, are expected to continue the trend through 2021 and beyond.