Student Loan Assistance Strategies - Paper Trails

Nate Moody, from our friends at Lebel and Harriman Retirement Advisors, recently wrote the below piece on student loan strategies for employers. We thank Nate for allowing us to share this article.

Student Loan Assistance Strategies for Employers

Student loan assistance addresses three critical issues currently facing employers and employees. (1) Employees are grappling with a growing student debt crisis that impacts their ability to save for retirement and causes financial stress that impacts their productivity. (2) Employers are struggling to recruit and retain employees in a tight labor market and an increasingly competitive benefits landscape. (3) Minorities are disproportionately affected by student loan debt.

These issues also represent a pivotal opportunity for employers:

• 86% of young workers would commit to five years with an employer that helped them pay off student loans¹
• 78% reduction in employee turnover among employees participating in an employer’s student loan reimbursement plan²

In recognition of the growing student loan crisis, Congress has recently passed multiple pieces of legislation incentivizing employers to help their employees with student loan debt, making now the perfect time to explore this benefit.  Here’s how you can do it:

• Section 127 Education Assistance Program (CARES Act).  Section 127 of the Internal Revenue Code, historically intended to be set up by companies for tuition reimbursement, allows for up to $5,250 in education assistance paid by an employer to an employee to be tax-free for both the employer (not subject to payroll taxes) and employee (not subject to income tax)³.  This makes the program applicable to for-profit and tax-exempt organizations alike.  These plans have become exponentially more popular in recent years as a result of the CARES Act which expanded the definition of “education assistance” to include student loan repayment through the end of 2025 (industry experts expect it to be extended even further). 
• Student Loan Repayment Matching (SECURE Act 2.0).  SECURE Act 2.0 is a landmark piece of retirement legislation included in the recently approved Consolidated Appropriations Act of 2023.   Among the 90+ provisions is one that codifies an IRS Private Letter Ruling given to Abbott Laboratories in 2018.  Employers may now elect to treat employee student loan repayments as if they were retirement plan elective deferrals for purposes of earning the employer match⁴.  This solves the dilemma that many young workers face—whether to save for retirement and receive the company match or to pay down their student debt.  Employers can often more easily implement this program because their retirement plan matching expense is already budgeted for.
• Public Service Loan Forgiveness (PSLF). PSLF is a federal program created to provide student loan forgiveness to individuals that work at non-profit or governmental entities for a certain period of time⁵.  While not directly an employer-sponsored benefit, qualifying employers can help employees with the PSLF in two key ways: (1) educating and assisting them with navigating the program, and (2) for organizations with high-earning employees (e.g. non-profit hospital), by strategically coordinating your 403(b) and 457(b) plan to supercharge the potential PSLF benefit.

It’s important to note that the recent Executive Order on Student Debt Forgiveness does provide a credit to individuals who make student loan payments prior to forgiveness⁶.  This means that implementation of one of these programs would not necessarily preclude an employee from being eligible for that forgiveness should it end up taking effect.

All of these student loan assistance solutions help individuals pay off their student loan debt, differentiate an employer’s benefits package, and fit perfectly into an employer’s Diversity, Equity & Inclusion efforts.  Employers can design plans aimed at achieving company goals while addressing the specific needs and interests of its workforce. Through these enhanced offerings, employers can help employees with their student loan debt and attract and retain young talent.

How can Lebel & Harriman help?

Lebel & Harriman has a deep level of expertise in helping employers design and implement student loan assistance programs.  L&H can help with employee surveying, plan document creation, strategic plan design, cost projections, provider selection, and employee communication.  In addition, L&H has student loan debt resources available for employees and can provide financial services related to the topic of student loan debt evaluation.

For more information, contact Matt Arey, JD or Nate Moody, CPFA^® at (207) 773-5390 or marey@lebelharriman.com | nmoody@lebelharriman.com.

Sources

1 https://file.asa.org/wp-content/uploads/2018/08/14141823/asa_young_worker_and_student_debt_survey_report-1.pdf

2 https://www.fidelityworkplace.com/s/studentdebt

3 https://www.berrydunn.com/news-detail/cares-act-expansion-of-section-127-of-the-irc-tax-savings-for-employers

4 https://studentaid.gov/manage-loans/forgiveness-cancellation/debt-relief-info#refunds

5 https://www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf

6 https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service

This document is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.  All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.