These days, every employer in every industry is trying to figure out the magical mix of pay and benefits that will help attract and retain employees.
While medical and retirement benefits have traditionally topped the list of employer offerings, there’s another type of benefit that may actually be equally or even more meaningful to employees of every age, especially with the recent resumption of student loan payments: education assistance. Hear me out…
As reported on TheCollegeInvestor.com, research from the Federal Reserve Bank of New York indicates the average student loan payment is $393. The average student loan debt is $39,351. (Farrington, Robert. “What Is The Average Monthly Student Loan Payment for US Borrowers?” June 1, 2023. TheCollegeInvestor.com.)
When you take a deeper look at data from the Federal Reserve Bank of New York’s Q3 Household Debt and Credit Report, you realize the impact of student loan debt reaches far beyond recent grads. In fact, as of the end of 2022, in billions of dollars, total balance owed by the under age 30 crowd is $351.57. Okay, so?
What’s eye-opening is the data for other groups: ages 30 to 39 owe $517.45; ages 40 to 49 owe $350.90; ages 50 to 59 owe $239.50; and ages 60 and over owe $135.47 – remember this is total balance in billions of dollars. So, in fact, the impact of student loan debt spans all ages and is largest for the middle-aged crowd that is also looking to buy a home, start a family, build retirement savings, and more.
Assuming your employees pay the average monthly student loan payment of $393 before ever having to account for rent or a mortgage, utilities, transportation, food, and other basics, and you realize their finances take a pretty big hit right out of the gate.
In fact, TheCollegeInvestor.com article goes on to say, “Despite hundreds of dollars going to debt each month, balances aren’t shrinking. Among borrowers who owe money on their student loans, just 37% of all borrowers saw their student loan balance shrink, according to the Federal Reserve Bank of New York. That means a large majority of borrowers, unfortunately, aren’t making any progress.”
While it’s important to have medical coverage “just in case” and it’s important to build savings so you can retire comfortably one day, a large number of people in the talent pool have a more immediate need: getting help to pay off student loans right now.
In the past, education assistance programs focused on helping employees in school pay for books, equipment, supplies, fees, tuition and more. In March of 2020, the IRS expanded education assistance so it can also be used to pay principal and interest on an employee’s qualified student loan (see IRS code sections 127 and 132). This feature is only available through December 31, 2025.
The total tax-free benefit – tuition reimbursement and/or student loan assistance – an employer can offer an employee is $5,250/year (amounts above that are taxable). Even better, the full $5,250/employee per year can be deducted by the employer, lowering its taxable income.
What about plan administration costs? Instead of having to buy coverage from an outside company or pay significant costs to a plan administrator (as is the case for medical coverage or a retirement savings plan), you can offer an education assistance program by creating an education assistance policy and a complimentary administrative process (i.e., forms an employee needs to complete and submit).
If this feels like too much, HR consulting firms like our affiliate Visions Human Resource Services can help you. Then, once your policy and process are up and running, administration costs equate to the time you or someone on your staff takes to review, approve, and process reimbursement requests.
There’s another big advantage that comes from offering education assistance: it shows your employees that you are vested in their professional development and committed to helping them upskill or reskill.
If you’re interested in learning more, please reach out to an RBT CPAs account manager or our Visions Human Resource Services affiliate. As always, RBT CPAs is also available to help you with your accounting, tax, audit, and business advisory needs. Interested in learning more? Give us a call today.
RBT CPAs is proud to say 100% of its work is prepared in America. Our company does not offshore work, so you always know who is handling your confidential financial data.