As student loan payments restart, can employers be a firewall for borrowers? Some groups hope so

As Americans with student loan debt brace for their monthly payments to restart and recover from the recent sting of the Supreme Court’s ruling against loan forgiveness, some groups are looking to the workplace as a firewall to funnel aid to borrowers.

SHRM, a group representing human resources professionals, called on Congress and state legislatures “to pass policies that support employees and employers,” according to a June 30 statement issued after the Supreme Court nixed the Biden administration’s debt cancellation plan.

Specifically, they want bigger tax breaks for workplace education benefits and an entrenchment of tax policy that’s otherwise slated to end in a few years. Advocates argue such tweaks would help put education on a more equal footing with mainstay benefits for retirement and health care, for which employers also get tax breaks.

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SHRM also called for businesses to “support their workers as they navigate their student debt challenges.” Debt payments, which have been on pause for over three years, are poised to restart in October.

Cody Hounanian, executive director of the Student Debt Crisis Center, said he isn’t surprised to see an “all-hands-on-deck approach” given the current environment for borrowers, which he called “a recipe for a disastrous situation.”

Few employers offer student loan benefits, which can take many forms.

Seventeen percent offer some type of student loan assistance, according to a 2021 survey by the Employee Benefit Research Institute. Another 31% planned to offer some type of assistance in the next year or two, the poll found.

The most popular workplace programs don’t offer direct relief for student loan payments.

For instance, about four in 10 employers that offer assistance do so via contributions into the 401(k) accounts of borrowers who are paying off student debt.

There are two other popular routes: debt payment counseling or education, and granting access to 401(k) loans — in essence, allowing an employee to borrow against their retirement savings to repay student debt.

“It seems like retirement savings is the constant here,” said Will Hansen, executive director of Plan Sponsor Council of America, a group that represents employers offering workplace retirement programs. “We’re now being used as the vehicle to assist with other financial habits, from student loans to emergency savings.”

Many workers, especially younger ones, prefer student loan payment assistance over more traditional benefits such as a 401(k) match, according to a Lending Tree survey.

More than half, 54%, of workers ages 18 to 24 held that opinion. The share declined to 45% for those ages 25 to 34, and to 39% for 55- to 64 year-olds, according to the poll, conducted in 2016.

There should be student-loan-related “enticements” in employee compensation packages, said Derrick Johnson, president and CEO of the NAACP, who called student loans “a personal crisis for far too many Americans.”

“Just like 401(k) and health benefits, there should be some type of assistance and support for employees to get out of this debt,” said Johnson. “There’s a role for the corporate community to step up and offer that level of support,” he added.

Of course, the best policy route would be for lawmakers to give financial assistance to student loan borrowers directly, instead of via workplace tax breaks, he added.  

Some of the most valuable workplace benefits, experts said, were created by the CARES Act pandemic relief law in March 2020.

The law expanded an existing tax break for educational assistance by adding student loan repayment as a qualifying educational expense. That expansion — of Section 127 of the tax code — allows employers to pay up to $5,250 a year toward a worker’s student loans. The payments are tax-free for the employee and business.

About 8% of companies offer a student loan repayment plan, according to SHRM. By comparison, 48% pay tuition assistance for those enrolled in undergraduate or graduate school.

The expanded tax break for student loan payments is temporary, however. It will end in 2026, absent action from Congress.

SHRM is calling on lawmakers to make this tax break permanent. It also called for higher annual limits on the tax-free payments.

The American Federation of Teachers, a labor union, also hopes the tax break is extended, a spokesman said.

“We’ve negotiated tax-free employer paid assistance in Albuquerque, New Mexico, and in several of our health-care affiliates in Washington state,” AFT President Randi Weingarten said in an emailed statement. “And we are making these proposals elsewhere, including in Orange County, Florida.”

Starting in 2024, employers will also be allowed to pay a 401(k) match to borrowers making student loan payments, a provision enacted by a 2022 law known as Secure 2.0. Student debt payments are essentially treated like a 401(k) contribution, qualifying borrowers for a match.

About 2% of employers sponsoring a 401(k) plan intend to implement the policy, while another 9% will likely add or consider it, according to a Plan Sponsor Council of America poll. Twenty-two percent are unsure.

Advocates for more student loan assistance at the workplace say that, in addition to helping employees relieve financial stress, which ultimately makes them more productive workers, such policies can help employee retention.

That may prove useful in a labor market in which job openings, which surged to record highs during the pandemic era, are still elevated and employers may have trouble hiring.

“With such a tight labor market, companies want to be creative in their benefit offerings to attract top talent,” Hansen said.

But there’s tension here: Such programs will appeal to certain employers and workforces over others, experts said.

Professional firms and others that hire large numbers of college graduates are likely to adopt the new 401(k) match provision as soon as possible, according to Fred Reish, a partner and retirement plan expert at law firm Faegre Drinker Biddle & Reath.

“It will message a concern for the benefit of those employees and an acknowledgement of their circumstances,” he wrote. “On the other hand, companies who primarily employ blue collar workers may not see a need to add this provision to their plans and to incur the resulting administrative complexity.”

Given that demarcation, individuals burdened most by student debt may not have access to any student-loan-related benefits at work, Johnson said.

Additionally, having a program might “generate resentment” among workers who don’t have student loans, which “could divide the workforce and create morale problems,” Lisa Porro, a human resources consultant at Inspiring HR, wrote last year in a SHRM opinion piece.

“Workers in jobs that don’t require a college degree won’t be helped,” Porro said. “Additionally, not all workers are able to attend college before starting their careers; some achieve success through experience and industry knowledge.”