Employers explore new benefits to help ease student loan concerns

There has been a lot of conversation about significant student loan debt and the impact it is having on the financial wellness of individuals. In the U.S., more than 44 million people collectively owe $1.5 trillion in student loans, with an average debt at $37,731.1

Student loan debt isn’t just a millennial issue—individuals in their 40s owe an average of $33,765,2 having taken out loans to provide for their children’s college or their own. And, the growing loan debt is expected to continue, especially given the rising cost of higher education. The Congressional Budget Office estimates that $1.27 trillion in new federal student loans will be added between 2018 and 2028.

Student loan debt is not only an individual concern; it can also have ramifications in the workplace and there is good reason for employers to address this growing trend. According to the American Student Assistance (ASA) organization, debt can impact employees’ health and productivity. In fact, the 2017 ASA Young Workers and Student Debt report highlights how student loan debt negatively impacts employees’ focus, well-being and retirement planning and delays their pursuit of additional education. More than half of the workers surveyed say they worry about student loan debt most or all of the time. Nearly 65% say they may seek a second job to help pay off their loans.

86% of employees would commit to a company for five years if the employer helped pay back their student loans.3

To help employees manage student loan debt, many companies have been exploring—or are already offering—student loan benefit programs. Creative ways companies are addressing student debt include:

Student loan repayment plans (SLRPs)
This benefit, which is usually administered through third-party vendors, allows employers to make monthly contributions directly to an employee’s student loan servicer while employees continue to make regular payments. The monthly contribution, which is applied directly to the principal, can shave several years off each loan. (Although legislation to make the benefit tax deductible is pending in Congress, SLRPs are currently treated as taxable income.)
Private Letter Ruling
On August 17, 2018, the IRS issued Private Letter Ruling 201833012 (PLR) approving an innovative approach to this issue: in the plan that received the PLR, any employee who participates in a student loan repayment program and contributes at least 2% of salary to paying off student loans will receive a 5% contribution to their 401(k) account. This is the same percentage as the actual match given to employees who contribute 2% directly to their 401(k). This approach does create additional testing implications for the plan. The PLR may only be relied upon by the company that requested it. Other plans that might like to explore this option would need to obtain their own PLR, which can take time and can be costly. Lastly, the PLR only addresses the issue of whether or not the contribution would violate Treasury rules on “contingent benefits”; it does not address other ERISA qualification issues including, but not limited to, non-discrimination testing.
Unlike student loan repayment (SLR) dollars given directly to employees, which are treated as taxable income, employer 401(k) contributions are not taxable. As a result, this approach could have tax advantages like those associated with traditional tuition-reimbursement benefits but generally denied to student loan repayment benefits.
We will continue to monitor this policy issue as we know it is important to our plan sponsor clients and their employees. There have been proposals in Congress in recent years related to student loan repayment benefits and while none have passed to date, this activity and the activity on the regulatory level show a policy interest in Washington related to student debt.

Employees appear receptive to assistance

With student loan debt such a widespread concern, efforts by companies to implement repayment benefits and support are being met by an enthusiastic workforce. According to the ASA report:

92% of employees would take advantage of a match for student loan repayments similar to a 401(k) match.3
89% would use long-term financial planning tools or advice.3
79% would take advantage of free access to a student loan debt counselor.3

Given the positive perceptions of student loan assistance, companies can offer such benefits to help them attract new and retain valued talent.

Education plays key role

Student loans can be complicated, and individuals may have multiple loans at different terms to manage. In addition, it’s important for employees to view student loan debt in context with their other financial obligations. Helping employees develop a smart strategy to manage the cost of college education is a key component to an effective, holistic financial wellness program.


Leverage the vast array of educational resources on college expenses available through online channels such as the Education Center and Better Money Habits.

Access related communications organized by key topics on the Employee Financial Education Resources website. View the “Student Loans” section under Financial Wellness Topic Bundles.

Evaluate your workforce demographics, needs and recruiting strategies to determine if a student loan benefit could help strengthen your attraction and retention efforts.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

1 Federal Reserve, Report on the Economic Well-Being of U.S. Households in 2016, May 2017.

2 Federal Reserve, Report on the Economic Well-Being of U.S. Households in 2015, May 2016.

3 2017 ASA Young Workers and Student Debt report.