Imagine a world in which the standard benefit package at work includes health insurance, 401(k) contributions, and a few thousand dollars to pay off your student debt.
More companies than ever are offering that last perk, but it’s still a fringe benefit. Two bills making their way through Congress could change that, by giving companies a tax incentive to help employees repay their student loans.
At the moment, when employees get money to pay off their student debt, it counts as taxable income, like a salary bump, just for debt payments. Unlike money that goes toward a 401(k), both employees and employers have to pay taxes on the benefit. For many businesses, it costs more than it’s worth. ”I think the tax treatment now is a detriment to more companies adopting this,” said Rob Lavet, general counsel for SoFi, a nonbank lender, which works with around 400 employers that give employees loan refinancing reductions.
The bills proposed in the U.S. Senate and House of Representatives aim to take away that hurdle by expanding a section of the tax code. The new policy would treat up to $5,250 per year in employer contributions toward student debt as nontaxable income, a change that could make the student debt benefit go from a niche offering to one that’s more common than parental leave.
“Student loan repayment would be a very attractive benefit that employers could offer,” said Kathleen Coulombe, a government affairs advisor at the Society for Human Resource Management, an industry group that worked with representatives on the bill. As of 2015, only 3% of companies surveyed by SHRM put money toward their employees’ student debt, but this year, there’s a boomlet of companies offering the benefit. Just this week, Fidelity announced it would put up $2,000 a year and up to $10,000 in total toward student debt. While hundreds of companies are reportedly lining up to chip away at their employees’ student debt, it’s mostly organizations that hire a lot of young people right out of college, such as PricewaterhouseCoopers, that use it as a recruitment tool. “We anticipate that that number would definitely go up, should it be covered in section 127,” said Coulombe, referring to the section of the tax code the proposed bills are looking to adjust. The 401(k) didn’t exist before 1980, when Ted Benna, the “father” of the 401(k), took advantage of the tax code. Benna started the first 401(k) program at his own company, the Johnson Cos. It caught on even more than he expected. “I was certainly not anticipating that it would be the primary way people would be accumulating money for retirement 30-plus years later,” he told Workforce magazine in 2012. Now 90% of companies offer their employees a 401(k) plan, and about 75% of companies match employee contributions. It’s possible that the same thing could happen with student debt.