Do Student Loan Benefit Plans Improve Employee Retention?

Do Student Loan Benefit Plans Improve Employee Retention?

Author: Rosie Greaves, LaborIQ Staff Writer

Apr 5, 2022

Is your talent pool drowning in student loan debt? Even prior to the pandemic, some employers had begun to offer student loan repayment programs as part of their overall compensation package. As the economy rebounds to more pre-pandemic norms, companies can expect this employee benefit to remain in high demand.

Offering a student loan repayment assistance benefit can improve retention of younger employees.

Good for Employee Retention

According to the Federal Reserve, student loan borrowers owed a collective $1.67 trillion in student loan debt as of June 2020, and NerdWallet’s 2018 household debt study found that the average U.S. household with student debt owes $47,671.

With so many prime-aged working people carrying student loan debt, it’s no wonder employers who help pay off this debt have an advantage in the labor market. So many younger workers are burdened by student loan debt that it impacts their financial decisions. Many may delay buying a home, starting a family or saving for retirement because of student loan debt. When recruiting entry-level candidates and employees under 40, offering a benefit that will help reduce their student loan debt will make you stand out as an employer.

"These programs can be a great incentive for employees that have student loan debt," Robert Farrington, founder of, an online personal finance and investing platform for Millennials, said to SHRM. "Student loans are a burden, and if the employer can take some of that burden off their shoulders, it can significantly improve recruitment and retention."

Kevin Barry, president of workplace investing at Fidelity Investments, agrees. He said to SHRM, "We know student debt weighs heavily on people—more than a third of Fidelity retirement plan participants surveyed have student debt, and 80% of those say it delays retirement planning."

In March 2020, Congress passed the Employers Participation in Repayment Act as part of the CARES Act. This law allows employers to contribute up to $5,250 – tax-free through 2025 – annually to their employees’ student loans. Unlike previous legislation, this new law also applies to existing student loan debt, instead of solely to new debt. This employer payment would be excluded from the employee’s income and would function like any other employer-sponsored benefit.

If your company can afford it, adding this perk to your benefits package can help build loyalty among employees, helping to curb employee turnover. Employees leave companies when they feel they are not being paid fairly or are offered higher pay to do similar work. While competitive salary offers may sway good talent to consider changing companies, student loan debt repayment may be the key to keeping them on your team.

PwC launched its student loan assistance benefit in 2015 and pays $100 per month for a total of up to $7,200. After two years, participating employees reduced their loan principal/interest by as much as $10,000 and shortened their payoff period by up to three years, according to Mike Fenlon, consultancy PwC’s chief people officer. For employees weighed down by student loan debt, reducing their financial debt is a way to earn their loyalty and entice them to stay longer with your company.

The demand for these programs has increased over recent years. In fact, data from Student Loan Hero shows that 54% of younger talent prefer a student loan payment assistance program over a 401(K) plan, while 45% of all employees feel the same way. Though the advantages are great for talent acquisition and employee retention, only about 8% of U.S. businesses offer student loan repayment assistance.

Cost, however, can be a barrier to entry for small companies. Student loan repayment assistance programs are expensive and may take money away from other benefit programs. Companies that recruit entry-level workers or a significant portion of their employees are Millennial and Gen Z, may find that the initial cost is worth it.

Starting a Student Loan Repayment Program

Student loan repayment assistance benefit plans have grown in popularity among younger workers.

"We are seeing an increasing number of employers adding student-loan repayment assistance to their benefits programs as a powerful differentiator in attracting and retaining employees," Heather Coughlin, solution leader for financial wellness at Mercer, an HR consultancy, said to SHRM.

Ready to take the plunge? Here are five steps to set up your student loan repayment program.

1. Gauge employee interest. Poll your employees to measure interest and how student loan debt factors into their career decisions. A check-in with your talent acquisition team to see if this is a recurring question while interviewing candidates could be the indicator you need.

2. Communicate clearly what you expect from participating employees. Employees must continue to make their minimum loan payment to qualify for the benefit. HR may find that educating employees on how to make the most of their payments may have good results for the employee experience and participants in the benefit plan. One example of how companies can do this is to make employees aware that enrolling in auto-debit will save employees 0.25% on their monthly payments.

3. Make it easy for employees to enroll. Reduce unnecessary paperwork and integrate monthly payments with payroll administration. If possible, make all employees eligible on their start date. This works well when the benefit plan doesn’t have different tiers or requirements related to employee type or other differentiators.

If your benefit plan has different tiers based on employee type, then make sure employees are aware and understand how the benefit applies to them. For instance, this may be the case for retailers. Companies may have different benefit levels for corporate employees, store managers and part-time associates.

Companies can also issue direct payments or partner with a third-party vendor. If using a third-party vendor, make sure that the program is an actual student loan repayment assistance one – and not a student loan refinancing program.

4. Create a program tailored to your company. Student loan repayment programs are not one-size-fits-all. As an employer, you control how much you contribute monthly and can cap your annual contribution at $5,250 per employee to keep them tax-free. Many companies limit their monthly payment to $100 and set a maximum amount over a five-year period. Starting at a low monthly amount may make it easier to determine overall program costs. Besides, you can always increase the company’s contribution in the future.

Depending on company size and the number of participants, companies have many ways of running this benefit plan. While many companies contribute $100 per month, others offer more – or less. For instance, a company may choose to limit its monthly contribution to $50 per month to get the program off the ground and see the impact on its budget. Some companies may even provide additional perks. New York Life, a life insurance company, which contributes up to $10,200 over five years that tops out at $170 a month, offers counseling and advice services for eligible employees who have taken out a student loan for their child.

5. Consider all employees. Not all employees will qualify or want this benefit. As you set up the program, ensure plans and parameters are in place so non-participating employees do not feel penalized or treated unfairly. Offering a continued education stipend can offset any perceptions of unfair treatment.

Like with any new benefit plan, companies need to be aware of necessary steps and obstacles before they implement. They must also anticipate what employees will need to know and what advantages the new benefit plan will provide the company.

As student loan debt remains a hot topic, more companies may begin to offer this option as part of their standard benefits plan. Every competitive advantage is needed in a tight labor market. With student debt consuming a greater percentage of one’s income, most employees appreciate the relief—and that could mitigate retention issues in the long term.

LaborIQ by ThinkWhy reports, forecasts and advises on employment conditions and the impact to jobs, industries and businesses across all U.S. cities.


TalentTech News

The latest on employment conditions, workforce trends and growth strategies.

Linkedin YouTube Twitter Instagram Facebook

Related Articles

Do you need a compensation solution?

Do you need a compensation solution?

Innovative Retention Techniques: Creative Workplace Benefits

Innovative Retention Techniques: Creative Workplace Benefits

How Restructuring HR Can Improve Employee Experience

How Restructuring HR Can Improve Employee Experience