How Employer Student Loan Assistance Works

Employee benefits have a simple purpose – to benefit the employees of a company. Until recently, that has mostly taken the form of employer-sponsored healthcare and retirement plans.

But with student loan balances at an all-time high, many companies are adjusting their benefits programs to address what many in the workforce see as their primary financial obstacle. By offering student loan repayment assistance, these companies hope to ease the burden their employees face – and attract young professionals who want to pay off student loan debt.

So how do these programs work, which companies are offering student loan repayment and what are the drawbacks to enrolling? Here’s what you need to know.

How Employer Student Loan Assistance Works

Student loan assistance is a relatively new employer benefit, mostly offered at major companies like Fidelity, PricewaterhouseCoopers and Aetna. 

There are two ways employers provide student loan assistance. The first method is a direct payment to the employee’s lender, every month for an unlimited or fixed period of time. 

The second way is more complicated. The employee pays at least a certain percentage of their income toward their student loans, with the company matching some or all of that amount with a contribution to the individual’s 401(k).

Every company with a student loan assistance program can decide how much to pay, if there are limits and when an employee is eligible. A company may require you to work there for a certain period of time before qualifying, typically six months or a year. 

Many companies have a lifetime cap on student loan assistance, often around $10,000. Some will only contribute to their employees’ student loan payments if the employee is making payments. This means the company won’t provide any student loan assistance if the loans are in deferment or forbearance.

Others will offer matching payments up to a certain amount. This is similar to how employees must contribute to their 401(k) before their employer will chip in.

How SoFi Provides Student Loan Assistance

SoFi, a San Francisco-based fin-tech company, offers its employees $200 a month in student loan benefits. Employees only need to work there for one month before they become eligible, and it applies to both federal and private loans.

The $200 is paid directly to the employees’ loan provider. A SoFi spokesperson said using this benefit doesn’t preclude employees from receiving 401(k) contributions or other financial perks. 

SoFi employees can receive loan assistance until the debt is completely repaid, even if they owe six figures or more.

What Employees Should Know About Student Loan Benefits

If an employer puts money toward the student loans directly, that amount will be reported as income on the employee’s tax return. They will then have to pay taxes on that amount, making it different from 401(k) matching contributions or employer HSA contributions which do not count as income.

Consider the effect on your taxes before taking advantage of your company’s student loan repayment benefit. It may be worthwhile to change your tax withholding on your W4 to account for the extra income. Ask your HR or payroll department for advice if you’re having trouble with the details.

If your employer offers a 401(k) match for your student loan payments, that amount won’t count as taxable income. Again, ask an HR representative if you have more questions.

Some companies may ask the employee to choose between student loan assistance and another benefit, such as matching 401(k) contributions. If this is the case, look at your student loan’s interest rate. If it’s below 6%, then opt for 401(k) contributions. If you have high-interest loans, go with the loan assistance program.

If you are struggling with student loan debt, there are ways you can lower your student loan payments, including enrolling in an income-driven repayment plan, temporarily going on a deferment or refinancing student loans to lower your interest rate. Keep in mind that refinancing any federal student loans means a loss in many benefits – income-driven repayment plans, any federal forgiveness programs, generous deferment options, and more.

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