Understanding The Student Loan Landscape

Employer interest in student loan support as an employee benefit has waxed and waned over the last several years as employee demand, political forecasts, and competing budget priorities have shifted. Several important events occurred in 2023 that set the stage for a change in the landscape:

  • The US Supreme Court struck down the Biden Administration’s student loan forgiveness program 

  • Pandemic-era forbearance ended 

  • Secure 2.0 codified retirement plan matching against student loan repayments

As a result, interest in student loan support as an employee benefit has once again risen and is more likely to remain at an all-time high.

Why is support needed?

According to a top student loan support vendor, Summer, 50% of American households have a member with student loan debt and 70% of those borrowers would be eligible for an existing government repayment program. Due to the complexities of navigating the various programs and exceptionally high rejection rate, only 15% of those individuals apply for a repayment program. 

Additionally, student loan support programs fit well in corporate Diversity, Equity, and Inclusion strategy:


Defining a Student Loan Support Program

Student loan support as an employee benefit can be distilled down to three options: 

  1. Support and Navigation Services: Help employees navigate existing government repayment programs, including Income-Driven Repayment (IDR), Save on A Valuable Education (SAVE), Pay As You Earn (PAYE), Public Service Loan Forgiveness (PSLF), and more. 

    Though any individual can apply for these programs on their own, data suggest a high rejection rate. As an example, the PSLF program has a rejection rate of over 90%, and rejections are typically due to minor administrative or formatting issues. Additionally, navigating and choosing the optimal program for individual circumstances can be particularly difficult without expert guidance or intuitive modeling.

  2. Employer Contributions: Contribute directly to employee student loan debt through tax-free employer contributions up to $5,250 per year. This tax-free option was initially introduced in response to the COVID-19 pandemic in 2020. The exclusion has been extended for payments made before January 1, 2025.

  3. Retirement Matching: Help employees save for retirement using an existing retirement plan match program while they focus on paying down student debt. This idea was popularized through an IRS Private Letter Ruling several years ago, but now has been formally extended to all employers. Through this program, employers can consider student loan repayments “equivalent to” employees making contributions to the retirement plan. As such, employers can deposit matching contributions to the employee’s retirement plan for student loan debt repayments. 

For example, if an employer has a $1:$1 retirement plan match and an employee makes a $200 student loan repayment (and $0 retirement plan contribution), the employer can deposit the $200 matching contribution to the employee’s retirement plan as if the student debt repayment was a retirement plan contribution. 

The first option above can be positioned as a solid foundation which could be combined with either the Employer Contribution or the Retirement Matching option where financial sponsorship is added.

Avoiding Pitfalls to Ensure Success

The student loan support landscape has changed dramatically within the last decade. Today, leading student loan support programs can include the following features to maximize return on investment: 

  • Minimize employer administrative burden: Ease of enrollment, linking existing student loans, and coordination with retirement recordkeeper are key elements to consider when vetting vendor solutions.  

  • Reporting to measure ROI: Although the need for support is well-documented, actual utilization is important to measure to ensure a program’s effectiveness. Market leaders will also be willing to share book-of-business ROI statistics, including average savings, average utilization, and even reduced turnover impacts.  

  • Expanding access: Many employers value broad-range impactful benefits when selecting how to allocate benefits dollars. Many student loan support vendors have expanded scope of services to include college savings planning and even extending access to family members (thus expanding household reach.) 

  • Aligned incentives: When selecting a student loan support vendor, Vita believes that highest-quality vendors will refuse kick-backs from private refinancing, which would disqualify individuals from Federal programs for which they may be eligible. Though private refinancing may occasionally make long-term financial sense, evaluating government repayment programs for Federal loans is a crucial first step for the majority of borrowers.


Vita’s Strategy

Vita is thrilled to announce a new partnership with Summer to bring student loan Support and Navigation Services to the nonprofit clients of our health and welfare benefits consulting team. Vita has focused on our non-profit segment to honor the amazing work done by our nonprofit clients and to maximize ROI through Summer’s support of PSLF program navigation.

About Summer (in Summer’s Words)

Summer is the only end-to-end student loan solution that saves employees an average of $40k and is proven to reduce turnover by 20%. Summer partners with employers to deliver tailored benefits that empower employees to save for education, better manage their student loans, find forgiveness options, and lower monthly payments. As a Certified B Corporation, Summer has partnered with leading employers, financial institutions, unions, and government leaders to generate over $1.5B in savings for borrowers.


Post a comment