3 things to consider when budgeting for an employer student loan repayment benefit

What goes into the cost of offering an employer student loan repayment benefit? Read on to find out
The Highway Team
The Highway Team
December 15, 2023
May 4, 2022

Post Summary

  • How much you should budget for an SLR benefit will depend on several factors including your monthly contribution amount(s), plan eligibility rules, and anticipated benefit enrollment or utilization.
  • Companies can use custom plan rules and eligibility criteria to create a sustainable and cost-effective benefit program.
  • When establishing custom plan rules, employers need to be sure to NOT discriminate in favor of highly-compensated employees (HCEs) in order to keep their plans compliant.
  • Highway can help you create a custom, compliant, and budget-friendly benefit plan that will tackle your talent goals and improve your employees' financial well-being.

What does offering an employer student loan repayment benefit cost?

So you’re interested in offering employer student loan assistance as a benefit to your employees but you’re wondering what it might cost and how much to budget? We’re here to help break it down. 

The bulk of the total cost of your benefits program will depend on a few main factors: 

  • Benefit Enrollment - The total number of eligible employees who enroll in your benefits program. This will be capped at the number of people in your company with student loans
  • Your Monthly Contribution Amount - Whether you contribute $50 a month per enrolled employee, $100, or the maximum $437.50 will change your program budget
  • Plan Structure - Eligibility requirements like tenure or minimum payment requirements will affect how many people receive a monthly contribution, and potentially how much

Benefit Enrollment 

It’s probably obvious, but the first factor that will determine your program cost will be the number of people at your company who enroll in this benefit. 

If you’re considering offering employer student loan repayments as a benefit, the first thing you may want to do is anonymously poll your employees to get a sense of how many employees have student loans. 

As a baseline, nearly ⅓ of the US workforce (roughly 45 million Americans out of 157 million employed adults in the US) hold some amount of federal student loans. You may find this percentage is higher or lower in your company depending on the various demographics of your employee population. 

This will let you roughly calculate the maximum number of people who may be enrolled in the program at any given time and budget accordingly.  Typically, depending on your criteria, anywhere from 90-100% of eligible employees will enroll due to the positive impact of a student loan repayment program on an employee's life. 

Plan Structure

As you plan your budget, a powerful tool you have at your disposal to keep your benefits program sustainable is your benefits plan structure. You can design your employer student loan contribution benefits plan such that eligibility criteria and tiers can make your annual contributions more reasonable. Some criteria you might consider as you structure your plan are: 

  • Tenure - Like stock options, you may want your maximum monthly contribution to “vest” over time. For example, you might offer $100 per month after 1 year of tenure, $200 after 2 years, etc.
  • Minimum payment requirements - If you want to ensure that your contributions are having the maximum impact on a loan's duration, you can require that employees make monthly minimum payments on their loans to be eligible for a match.
  • Maximum lifetime benefit caps per employee - To help your team budget, you might decide to cap your total contribution to an employee’s loan at a certain lifetime amount (e.g. $10,000 over 5 years) 

How you structure your plan will have a big impact on your plan’s total annual cost. 

Monthly Contributions

Finally, the last major consideration that should factor into your program budget is your monthly employer contribution per enrolled employee. 

We often get asked, “how much should companies be contributing to their employees’ student loans?” and the reality is, there’s no perfect answer. 

When designing your benefits plan, how much you might want to contribute to your employees’ student loans (and for how long you might want to contribute) is entirely up to you. Employers, like PWC, have found that it’s best to offer enough of a monthly contribution to make a meaningful impact on your employees’ debt burden, while still keeping the amount reasonable so that the benefit remains sustainable. 

PWC settled on $100 per employee per month, but even a little as $50 could make a difference for your employees. With Highway Benefits, you can offer as little or as much of a monthly contribution as you’d like, up to $437.50 per month ($5,250 per employee per year). With Highway, you also have the ability to cap your employer contribution over the lifetime of the benefit. 

Employer student loan repayments are one of the most meaningful and impactful benefits you can offer your employees. Since the average adult with student loan debt holds roughly $40,000 in debt, you have the potential to help your employees pay down a significant percentage of their debt with your tax-free contributions. 

How can we offer this impactful benefit while staying cost-effective?

Highway Benefits can help you figure out how to structure your plan in the most impactful yet cost-effective way. Our turnkey platform supports highly customizable tax-free student loan contribution plans so that you have flexibility and choice when designing your benefits plan. 

While any benefit you offer will have a cost, employer student loan repayments are one of the best dollars you can spend on a benefit. Why? Because every dollar you contribute has a dual benefit for both your employees and your company. 

Employer student loan repayments are one of the best dollars you can spend on a benefit. 

Employer student loan repayments are tax-free for your employees and your business which means they are more cost-effective than simply handing out bonuses or increasing an employee’s salary by the same total contribution amount. Since bonuses and salaries are subject to payroll, social security, and income taxes, they’re more expensive to payout for you, as the employer, and less impactful for your employees (who will receive a smaller net amount after taxes). With tax-free contributions, you can ensure that every dollar you put towards your employees’ student loan will have the maximum impact on their financial well-being. That’s why employer student loan repayments are one of the best dollar for dollar benefits that a company can adopt. 

Additionally, studies have shown that employer student loan repayments can boost your recruiting and retention, saving you thousands of dollars in recruiting and training costs. When you’re estimating net costs for your employer student loan contribution benefit, don’t forget to take into account any savings you may see from increased retention.

Schedule a call with our team to discuss your unique situation and get a custom proposal.

The Highway Team

The Highway Team is on a mission to spread knowledge about student loans, the state of the student debt crisis, and impactful benefits like employer student loan repayments. We're here as a helpful resources so drop us a line anytime. Find us on all the major channels as @highwaybenefits

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