New Bill in Congress Would Help Student Loan Borrowers Get Assistance From Employers
There’s a new effort underway in Congress to help workers repay student loans. A new Senate bill would allow employers to provide up to $5,250 in student loan repayment assistance tax-free to their employees.
The bill, sponsored by Senators John Thune (R-SD) and Mark Warner (D-VA), is dubbed the Employer Participation in Repayment Act. If it becomes law, it will bring student loan benefits in line with the tax treatment currently afforded to tuition assistance programs. Currently, employers can provide up to $5,250 per year in tax-free educational assistance to employees. But employer contributions toward existing student loan balances are currently fully taxable to the employee. This creates a hardship for workers at tax time, and limits participation.
A Financial Hardship
Currently, total outstanding student loan debt now tops $1.5 trillion, with average monthly payments over $222 (median) and $393 (mean). Those payments last for years after students graduate – and even if they don’t graduate. Payments have become so big that some economists estimate that Millennial workers are putting off homeownership by as much as seven years. They are also causing younger workers to delay saving for retirement and starting a family.
Millennials falling into an employee benefits gap
Meanwhile, millions of workers between 22 and 35 are falling into an employee benefits gap. Their needs are frequently ignored by many employee benefit packages. For example, spare income is diverted to student loan payments rather than to 401(k) contributions. And these young workers are usually in good health and don’t benefit much even from a generous employee health plan, for instance.
“There are seven million people currently in default on student loan debt, and that’s a problem,” said Ravi Sawhney, founder and chairman of Loangifting, a company that allows students to leverage employers, family and other members of their support network to pay off their student loans via crowdfunding.
“But employers have a problem, too,” adds Sawhney. “Financially stressed employees and employees are less engaged and therefore less productive. Workers who don’t participate in 401(k)s aren’t as connected to their employers. As a result, they’re more willing to leave their jobs. This leads to higher turnover costs. Study after study proves this. Employers who want to appeal to Millennial talent should tackle the issue head on. The ones who do have a terrific opportunity to enhance their employer brand.
Similar legislation has already been introduced in the House by Representatives Rodney Davis, (R-IL), and Scott Peters (D-CA). They’ve already lined up over 100 cosponsors. 70 current sponsors are Democrats, and 31 are Republicans.
Jason Van Steenwyk is an experienced financial industry reporter and writer. He is a former staff reporter for Mutual Funds, and has been published in SeekingAlpha, Nasdaq.com, NerdWallet, Value Penguin, RealEstate.com, WealthManagement.com, Senior Market Advisor, Life and Health Pro and many other outlets over the past two decades. He is also an avid fiddle player and guitarist. He lives in Orlando, Florida.