Designing a Student Loan Contribution Plan Under the CARES Act
Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.
The CARES Act comes with not only a trillion-dollar relief package but also a provision that allows employers to make tax-free contributions toward their employees’ student loans.
Employers can contribute up to $5,250, tax-free, but there’s a catch—the opportunity will expire on Dec. 31, 2020. However, if employers participate in the program, there’s a chance the legislation will be renewed for years to come.
SoFi hosted a webinar on April 24 to help employers take advantage of this incentive, with participation from two of SoFi’s existing employer partners.
Moderated by Jackie Barrett, SoFi’s senior director of sales and partnerships, the panel included:
• Shakir Karim, business lead, SoFi at Work
• Michelle Hite, vice president of human resources, Barnum Financial Group
• Jessica Chicorelli, director of financial benefits, Akin Gump Strauss Hauer & Feld LLP
The webinar covered the basics of the CARES Act provision, how it affects employer contributions, and best practices for designing a contribution program from SoFi partners who’ve done it before.
Why Student Loan Contributions Matter Now More Than Ever
When asked what causes them the most anxiety, employees are overwhelmingly more likely to respond that finances give them the most stress . Eight in 10 Americans carry some form of debt, and in the past decade, university costs have risen 25%.
Financial matters can weigh heavily on employees’ day-to-day lives. If an employer has the means, offering some relief on employees’ student debt repayment could make a dramatic difference in workplace well-being.
Impact of the CARES Act
With the CARES Act, employers have a chance to make an even greater impact on their employees’ student loans. Typically, taxes will eat up between 12% and 37% of an employer’s contribution towards student loan repayment, Karim said, but now, employers have the chance to make up to $5,250 in contributions, all tax-free for both the employer and the employee.
That means 100% of the contribution will go toward paying off student loans. Additionally, federal student loan interest has been paused through Sept. 30, so any contributions to those same loans could have an even greater impact.
While these benefits could make a significant impact on employees’ student loans, time is also of the essence. Employers will have to act fast to set up a contribution program before the provision expires at the end of the year.
In addition, if more employers take advantage of this opportunity, it could make it more likely that this benefit will live on in permanent legislation.
Designing a Contribution Plan
Employer student loan contribution isn’t a new employee benefit, but the CARES Act could make it more compelling to some companies.
“Employers are looking for impactful and meaningful ways to support employees this year where the budget allows,” Karim said. But wanting to do something is different from actually doing it. Companies would have to set up the contribution programs and find room in the budget to contribute.
In his experience working with employers to set up the benefit with SoFi at Work, Karim has noticed companies evaluating the usage of benefits that have been affected by work-from-home policies.
He’s seen companies during the COVID-19 outbreak divert their budget from snack programs, unlimited vacations, gym memberships, and commuter and parking benefits into a one-time contribution payment to employees.
Employers across all industries are creating contribution programs, explained Barrett. The majority implement monthly programs for all employees, but programs vary greatly from employer to employer. “Our flexible platform can meet today’s objective and work with you in the future,” Barrett said.
Case Study: Barnum Financial Group
At Barnum Financial Group, Hite helped create a program where the company’s top-performing financial advisors receive a monthly contribution toward their outstanding student loans.
Originally seen as a way to recruit, reward, and retain talent, Hite initially had concerns the benefit would be approved. “My biggest fear was of what I didn’t know. I had to get it approved by the CFO, and I worried what they’d think of it.”
When they crunched the numbers, Hite and her team were surprised to discover that even the highest payout of the contribution would barely skim the surface of the costs it’d take to train and recruit new talent. With that figure in mind, “I just got a ‘Yes, move forward,’” recalled Hite.
Since starting the program last year, there’s been an increase in recruitment numbers and positive feedback from current employees.
Case Study: Akin Gump Strauss Hauer & Feld LLP
International law firm Akin Gump Strauss Hauer & Feld launched its employer contribution in December 2016 for its first-year associates. Fresh out of law school, the firm offers a monthly contribution toward employee student loan repayment.
“We took this as an opportunity to stand out among the competition, we’re one of the few firms that offers this type of program,” Chicorelli said. The gesture of goodwill has become a calling card for the firm, making it stand out in a competitive industry.
Since instituting the program, the firm’s seen 97% participation from the eligible population. Participation has grown year over year, and Chicorelli’s seen it as a great differentiator in a competitive industry: “As soon as I mention student loans to recruits, all the ears perk up.”
Making It Work With SoFi at Work
Taking advantage of this time-sensitive tax benefit will take quick thinking, and that’s where the SoFi CARES Pilot Program can help.
SoFi is waiving all fees for a one-time 2020 employer contribution toward employee student loans and is offering employees free access to the full suite of financial tools.
Implementation is turnkey. All an employer has to do is choose eligible employees, provide information, and select the timing of the contribution. Any questions along the way can be answered by SoFi’s dedicated support team.
Time might be ticking down, but there are still plenty of opportunities to set up an employer contribution program. HR professionals can reach out to [email protected] for a full version of the webinar or to learn more about SoFi at Work.
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