When I graduated from college, I was one of the “lucky ones” with a lower-than-average student debt load. While I “only” had $10,000 in loans, it still took me seven years to pay them off.
These days, with the average student loan debt for the Class of 2018 looming at $29,800, it could take you decades to crush that debt. In fact, you might be taking your student debt with you well into your retirement years. Student loan borrowers in their 60s owed an average of $33,800 in 2017, according to the Federal Reserve’s Survey of Consumer Finances, while those over 50 owed more than $50 million in student debt. What’s more, the Consumer Financial Protection Bureau (CFPB) reports that almost 40 percent of those age 65 and over have defaulted on their student loans.
While that’s certainly a cascade of downer news, there is a sliver of hope: companies are catching on to the hot new benefit that is student loan repayment programs. Through such a program, your employee would help pay off a portion of your student debt. According to the Society of Human Resources Management (SHRM)’s most recent Employee Benefits Survey, companies that offer student loan repayment as part of their benefits package have spiked from 4 percent in 2018 to 8 percent in 2019.
Curious about how student loan repayment programs work? Here’s what you need to know:
How Student Loan Repayment Works
Similar to say, how an employer-sponsored retirement plan such as a 401(k) account works, your employer would work with a third party. This third party would enable your employer to make monthly contributions to your student loan servicer. Meanwhile, you’d continue to make your own payments toward your student loan debt. The particularly cool thing is that your employer’s contribution would go toward the principal, which could potentially knock off a few years off your student loan repayment.
The structure and amount of assistance that can be offered will depend on the employer. Your workplace might offer a single-lump payment. For instance, Goodly helps employers come up with a contribution plan, then syncs up with payroll providers to make additional student loan payments on behalf of the employees. These contributions are made with after-tax dollars, and the employer can contribute anywhere from $25 to $200 a month toward debt balances.
So exactly how much could you save with student debt repayment assistance? Let’s say you have $30,000 in student loans, and your interest rate is 4.79%. Your monthly payment is $315. If your employer contributes an extra $100 each month, instead of 120 months, it’ll take you 85 months to pay off your debt, shaving off nearly 3 years. What’s more, you’ll go from paying $7,800 to $5,275 in interest, which saves you $2,525 in interest fees alone. Of course, all that depends on how long you stay with your company and how many months they’re contributing to your student debt payments.
Make a Strong Case for It
Consider leading the charge at work and requesting that student loan repayment assistance be added to your benefits package. Reach out to your human resources department at your workplace and make a case for it. You could bring this up during a scheduled session on employee benefits, or during your annual review.
Pointing out some relevant stats could help further support your argument: An ASA survey comprised of 500 participants reveals that 85 percent of workers would commit to a company for five years if their employer helped with student loan repayment. What’s more, nearly 65 percent say they might get a second job to pay off their student loans. The bottom line: Offering student loan repayment can be a win-win for both you and your employer.
Changes at the Legislative Level Is Pending
There might be a few changes at the legislative level that could provide companies greater incentive to hop on the student loan repayment bandwagon. The Student Loan Repayment Assistance Act would extend a 10% tax credit for employers offering student loan repayment help. It would be 10% of how much an employer pays on behalf of their employee, up to $500 a month.
Another incentivizing piece of legislation that’s pending is the Employer Participation in Repayment Act. Introduced in February 2019, this bill, if passed, would allow employers to grant up to $5,250 a year in tax-free student loan assistance, which is the same amount of tuition reimbursement that is tax-exempt.
There Are Non-Employer-Sponsored Programs
What if your employer is unable or unwilling to implement a loan assistance program? Or you’re a freelancer without full-time benefits? Beyond employee-sponsored student loan repayment assistance programs, there are other ways of getting help with paying off your student debt. For instance, some places in the U.S. offer relocation programs for digital nomads to work and live in their city.
And if you’re in the market for buying a house, a handful of state-sponsored home-buying programs could help shave off your student loan debt. For instance, through Maryland’s SmartBuy Program, you could receive some help with your debt burden while you’re buying a home there.
While being saddled with student loan debt is a reality you can’t ignore, hopefully the rise of student debt repayment programs offered by employers will help alleviate the tremendous burden. If employees make the case of these programs at work, and legislators pass bills that incentivize employers to implement them, the resources available for borrowers will hopefully only continue to grow.
The post Student Loan Assistance Programs: What You Need to Know appeared first on MintLife Blog.