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Student-Debt Relief for Employees

A proposed change to the tax code would give companies more incentive to offer assistance to their workers.

The Wall Street Journal
By Robert Barba

Only a small percentage of companies help their employees with student-loan payments, despite it being a sought-after perk. But that could change dramatically if a proposed tweak to the tax code gains momentum in Congress.
 
There is no doubt that employees would welcome some kind of loan-relief benefit. A recent survey by YouGov commissioned by health-care company Abbott Laboratories found that 64% of adults with student-loan debt say finding a company with student-loan benefits is important. Yet last year only about 4% of employers offered student-loan-repayment assistance as a workplace benefit, data from the Society for Human Resource Management show.
 
What is keeping more employers from offering it? Many HR managers say the biggest obstacle is the tax treatment that student-loan-repayment assistance currently gets. Employers have to pay a payroll tax on the contributions, while employees who receive such assistance have to report it as taxable income.
 
To remove that snag, lawmakers in both houses of Congress earlier this year reintroduced bipartisan legislation that would permit employers to contribute up to $5,250 annually tax-free toward an employee’s student loans. The bills would accomplish this by expanding the section of the tax code that currently allows companies to provide tax-free tuition-reimbursement assistance in that amount to workers seeking to further their education.
 
Such legislation has been introduced before, but its backers say conditions are now ripe for it to win supporters. Americans have nearly $1.6 trillion in student-loan debt, according to the Federal Reserve, and that debt is having a ripple effect as borrowers often put off things like buying homes and saving for retirement. The tight labor market, meanwhile, is pushing companies to look for creative ways to recruit talent.
 
“It is an increasingly prominent problem,” says Rep. Scott Peters (D., Calif.), who in February reintroduced the bill in the House with Rep. Rodney Davis (R., Ill.). Sens. John Thune (R., S.D.) and Mark Warner (D., Va.) introduced the Senate bill.

Blazing the trail

Most student-loan-assistance programs are designed to complement the student-loan payments employees already are making and go directly toward the principal. There are a handful of firms in this space—including CommonBond, Tuition.io, Social Finance and Gradifi—that verify the employees have student debt and facilitate the payments. Companies can tailor their programs by, say, offering the program only to specific types of employees or specifying that the debt must be the employee’s debt, not a child’s or grandchild’s.
 
Even with the tax hit, some companies have started offering loan-repayment benefits as competition for young talent heats up.
 
In 2017, the human-resources team at Pure Group of Insurance Cos. noticed that its recent college-graduate hires weren’t taking advantage of the firm’s 401(k) match. The employees said they couldn’t afford to contribute to their retirement because their student debt was more pressing, says Katherine Richardson, chief of human resources at Pure. So, in early 2018, the company began offering its employees $100 a month toward their loans. It says about 25% of its 675 employees use it.
 
The current tax treatment of the benefit is a downside to the program, says Joanna Stein Weiner, assistant vice president of compensation and benefits. “We wish it was more tax efficient,” she says. “But to us, the benefits outweigh the costs.”

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