Need for Loan Repayment Assistance

The numbers are staggering: Over 44 million Americans[1] have over $1.5 trillion[2] in outstanding student loan debt. As a result, many borrowers either delay beginning to save for retirement or save a lot less while they are paying off their student debt, which has serious consequences for their long-term financial security. Unsurprisingly, loan repayment assistance is becoming an increasingly popular employee benefit, especially for younger members of the workforce. Employer programs vary and include 401(k) matching, refinancing assistance, and additional compensation to pay off debt.

What You Should Know

  • Student loan 401(k) matching enables plan sponsors to match an employee’s student loan repayment and apply it to their 401(k) account. These programs seek to remove the either/or scenario for employees with student debt and encourage early career retirement saving.
  • Employers who are thinking about incorporating a tax-advantaged student loan repayment benefits program may be able to do so within their 401(k) plan. In 2018, the IRS issued a private letter ruling (PLR) permitting Abbot Laboratories to match student loan payments with 401(k) contributions. Other plan sponsors have since obtained similar PLRs allowing student loan assistance in their plans. A PLR from the IRS applies only to a specific plan sponsor proposing to include a student loan repayment benefit program in their retirement plan. Any in-plan student loan repayment benefit program should be reviewed with legal counsel before implementation.
  • Legislation has been proposed in the House and Senate that would permit broad adoption of student loan 401(k) matching programs.
  • Additional options for employer assisted programs include:
    • Providing supplementary compensation based on the size of the student debt
    • Assisting employees in refinancing loans at lower rates and fees
    • Making payments directly to a loan servicer on behalf of employees
    • Offering debt counseling and debt negotiation services
    • Providing bonuses that can be used toward paying student loans

Considerations and Challenges

General employer student loan repayment assistance plans

  • The appropriate alternative will depend in part on the types of employees an employer seeks to attract and retain.
  • Employers must assess whether a vendor will be needed to administer the program and, if so, whether a current vendor or a new vendor is needed.
  • Tax consequences for employer and employee must be considered when deciding whether to offer a student loan repayment benefit program that is tied to a qualified retirement plan or works outside of a qualified plan.

Employer assistance programs linking 401(k) plans with student loans

  • Employers or their vendors must monitor participation in the student loan program and the DC plan; an employee may start or stop payments and contributions throughout the year. Plan sponsors must have the flexibility to adjust based upon changes in participant behavior.
  • Employers will need to compare the level of student loan payments to the compensation earned during the period the payments were made. Integration with a third party is likely to be necessary.
  • Nondiscrimination test results may be adversely affected. Safe harbor contributions cannot be made at a higher rate for highly compensated employees than for non-highly compensated employees.
of borrowers say student loans negatively impact the amount they save for retirement.[3]
of those who aren’t saving for retirement at all say it’s because they need to pay off student debt[3]
of young adults rank student loan repayment assistance as one of the top employer benefits (ahead of 401(k) match (36%))[4]

Student Loan Assistance Vendors

*PNC does not endorse third party vendors. Information about third party vendors is provided for informational purposes only. Such information is not guaranteed to be accurate or complete.

  • Flexible Matching Program (within 401(k) plan): A participating employee allocates contributions in one of three ways: to a traditional retirement plan, student loan repayment, or a certain percentage toward each. Thrive calculates the amount for payroll deduction and employer matching, ensuring elections follow plan rules. The employer withholds the deduction and applies matching funds in one lump sum. Thrive processes and applies payments to each employee’s student loan.
  • Employee Choice (within 401(k) plan): Eligible employees use company-matched funds for student loan repayment; processing and operations are similar to Thrive’s program.
  • Employer-Assisted Student Loan Repayment: Employees are responsible for making the minimum payment; employers send an additional contribution amount to BenefitEd, which is applied to the student loan.
  • Student Loan Refinance: Lower interest rates and flexible loan terms help qualified borrowers save money over the course of their repayment.
  • Student Loan Refinance: SoFi can refinance employees’ student loans with low rates and no hidden fees.
  • Student Loan Verification: An employee’s student loan payments are tracked to validate eligibility for a 401(k) match.
  • Contribution Benefit: Employees pay their student loans off faster with principal-reducing contributions made directly to student loan service providers.
  • PTO Conversion: Employees can apply unused paid time off toward a student loan.
  • Default Loan Rehab Program: The program is designed to help employees prevent or stop wage garnishment, remove late fees and penalties, provide experts to negotiate with collection agencies, improve credit scores, and get out of default.
  • Consolidation and/or IDR Plan: Multiple smaller loans are consolidated into a single loan and/or enrollment into a federal income-driven repayment (IDR).
  • Company Contribution Plan: An online platform automates giving, allows employer to make monthly contributions toward student loans, and connects payroll vendors to automate contributions. Designed for employees who do not qualify for federal programs because they have private student loans or are making too much to qualify for other forms of assistance.
  • Student Loan Repayment Assistance: The plan offers customizable contribution programs that enable the employer to choose the contribution amount, eligibility rules, and frequency best suited for the company and its employees.