The American job market can be divided in two. There are jobs with benefits and employment without. If you’re lucky enough to have a job with such perks as health insurance, vacation time, profit-sharing, and retirement, you’re doing great. And now — in a growing number of cases — employers may start helping with student debt.
It’s the newest perk and for those with student debt, it can be very important. Recent changes to the tax code make it easier for employers to offer such a benefit. Most importantly, if you’re in demand, it may be something worth asking about.
The willingness of employers to assist with student debts is likely to be a substantial benefit for several reasons.
First, help with student loans is an immediate benefit. If you’re making student loan payments you’re making them now, when they’re a real cost and any help is welcome.
Oddly enough, some perks sound great but have less utility. For example, vacation time is good, and more vacation time is better, but many workers do not use their time. A 2023 study by the Pew Research Center found that “more than 4 in 10 U.S. workers don’t take all their paid time off.”
Second, employers seek advantages in the marketplace. Helping with student loans is a highly visible way to attract talent, especially for companies that generate significant profits and can afford the program.
The reason employers are now looking more seriously at student loan assistance is because of a change in the tax laws.
Beginning this year, a new rule takes effect under the SECURE 2.0 Act of 2022. It’s “intended to assist employees who may not be able to save for retirement because they are overwhelmed with student debt, and thus are missing out on available matching contributions for retirement plans.”
This is a big deal. Federal student debt – which is owed by nearly 43 million borrowers — amounted to more than $1.75 trillion at the end of the first quarter
The new program allows employers to match employee student loan payments. The matching amounts are added to retirement accounts.
Morgan Stanley explains that beginning this year the new rules “Allows employer contributions made on behalf of an employee for eligible student loan payments to be treated as matching contributions for SIMPLE IRAs, 401(k), 403(b) and governmental 457(b) plans.”
In other words, with many retirement programs if you put money into a retirement account, your employer can put in a matching sum. Under SECURE 2.0 you can take some of your income and use it to reduce student debt.
Your employer can then match that money with a retirement contribution. The result is that student debt goes down, retirement savings go up, and a big chunk of the money comes from employers.
Abbott, the big drug company with nearly 115,000 employees and an early adopter of the SECURE Act option, has told workers that they do not “have to choose between paying down your student loan debt and saving for your future.”
“If benefit-eligible employees apply at least 2% of their eligible salary toward paying down a qualifying student loan,” said the company, “they will receive a 5% company contribution into their Abbott 401(k) annually. Employees don’t have to put any money into their 401(k) to get this company contribution. This means our colleagues can really focus on paying down their student loan debt while knowing they’re still saving for the future.”
You can see where this is going. The June unemployment rate was 4.1%, a low percentage by historic standards. There were 8.1 million job openings for 6.8 million job seekers. If you need a job and have a desirable skill or talent, you’re going to have a lot of choices.
“Talent is the driving force behind successful businesses,” said Joseph Romano, writing in Forbes. “While it may be difficult to determine the value of each employee, every one of them directly impacts the bottom line — for better or for worse. It’s easy for business owners to become too distanced from their people and to view them as commodities that can be easily replaced. I like to think of employees as assets. The right assets, if managed correctly, create value. Just like a technology patent, a proprietary process, or a strong brand, talented people are true assets to an organization.”
Employers, job agencies, and human resource departments all understand the dynamics at work here. They’re in a bidding war to attract top talent, not because they love big employee packages, but because they want business success.
As a result, help with student debts is about to become more common, good news for employees who want to pay off educational loans.