Many American workers today are saddled with student loan debt and struggling to pay it off. The ensuing financial stress can hurt workforce productivity and cause retention problems as employees continually seek higher-paying opportunities elsewhere. Employers can help address these issues and differentiate themselves from competitors by offering student loan repayment benefits.

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What is employer student loan repayment?

Student loan repayment by employers is a benefit that helps employees reduce their student loan debt. Programs may either be a direct repayment made by the employer or discretionary, which allows employees to choose how benefit dollars are applied to their student loans. In some cases, financial coaching may also be provided.

Why offer student loan repayment benefits?

An increasing number of people in the workforce today have student loan debt with interest and are searching for help managing it. Companies that tap into this need with an employer student loan repayment program may be able to retain existing employees and attract new talent.

Reducing financial stress associated with student loans can also improve productivity and entice employees to further their training or pursue new certifications. In this way, employers can upskill their workforce.

How does employer student loan repayment work?

An employer paying student loans will usually establish specific ground rules. For instance, there’s typically a maximum amount they’re willing to contribute to a student loan balance. Employees may also have to work for the company for a certain period to be eligible for the benefit.

Payment terms vary by program. In some cases, employers may make lump sum payments; in others, they may set up recurring payments. The payments may be sent to the financial institution that holds the loan or directly to the employee. If the employee has multiple loans, payments might first be applied to the loan with the largest balance or the loan closest to being fulfilled.

Types of employer student loan repayment assistance programs

One of the great things about student loan repayment benefits is their flexibility. Employers can create programs that best fit their budget and the needs of their employees. Here are some of the more common variations:

  • Recurring payments – Employers repay the employee’s loan in regular installments.
  • Signing bonuses – New employees receive a lump sum payment toward their student loan balance.
  • Paid time off (PTO) exchange – Employees swap their unused PTO for cash applied to their student loans.

Tips for offering student loan assistance as an employee benefit

To maximize the benefit of student loan repayment programs, employers might want to consider the following tips:

  1. Contribute the right amount
    A good rule of thumb is $50 per employee, per month. If that’s too expensive, employers should weigh the cost of a student loan repayment program against what they’d be willing to spend to increase the number of qualified candidates applying to their company.
  2. Promote the program
    After launching a student loan repayment program, employers can tout it in several ways:
    • Issue a press release announcing the company’s commitment to reducing student debt
    • Encourage employees to mention the program when they refer candidates
    • Celebrate when an employee’s loans are paid off through the program
  3. Make participation easy
    Allowing any employees with student loans in good standing to qualify for the program increases participation rates. Restricting eligibility based on when and where the loan was taken or the type of degree earned only serves to diminish the benefit’s impact.
  4. Offer student loan resources
    If repaying student loans isn’t part of the HR budget, employers can still support their employees by sponsoring a student loan resource program. These programs may include debt counseling, refinancing options, and other tools employees need to overcome their student loan debt.

What must employers do to establish an employer student loan repayment program?

To create a student loan relief program, employers must carefully weigh their budget and answer the following questions:

  • How much will each employee be reimbursed each year?
  • Which employees will be eligible for the benefit?
  • What is the preferred reimbursement method (lump sums, recurring payments, etc.)?

Frequently asked questions about employer student loan repayment

Can an employer repay student loans?

Employers can and do help their employees repay student loans as a recruitment and engagement tactic. Any restrictions, such as eligibility criteria and contribution limits, are usually imposed by the employers themselves.

Student loan repayment vs. education assistance

Student loan repayment generally is always taxable to the employee. In contrast, Section 127 education assistance programs can cover an employer’s current education costs pretax up to $5,250 per individual, per year. Qualified expenses may include tuition, books, equipment or supplies.

However, Congress temporarily amended the tax code for the period beginning March 27, 2020 and ending December 31, 2025. During this time, employers can use section 127 education assistance programs to pay for the principal or interest on an employee’s qualified student loans up to the $5,250 limit.

Why should you consider paying your employees' student loans?

Millions of Americans have student loans and are looking for help getting out of debt. By meeting this need with a student loan repayment program, employers can retain valued employees and attract new talent. Helping alleviate financial burdens on employees may also improve workforce productivity.

This article is intended to be used as a starting point in analyzing employer student loan repayment and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.

ADP Editorial Team

ADP Editorial Team The ADP editorial team is comprised of human resource professionals with extensive experience solving complex HR challenges for businesses of all sizes.