After Harvir Humpal earned his master’s degree in biomedical engineering, he was offered jobs at three Silicon Valley companies. But for the 24-year-old, who graduated from California Polytechnic State University in San Luis Obispo with $60,000 in student loan debt, one firm stood out from the rest: the healthcare company Abbott Laboratories.
It offered help repaying his student loans, a perk the other two couldn’t match.
“It’s nice to have a good healthcare plan, a great culture, but I would say this program was top of my bucket list,” Humpal told the Washington Examiner.
Through its Freedom 2 Save Plan, Abbott contributes 5% to eligible employees’ 401(k) retirement plans without requiring them to make their own contribution as long as they spend at least 2% of their income on repaying student loans.
The company rolled out the benefit in August, and almost 1,000 employees are already participating.
“We want to ensure that we’re attracting and retaining the best people we can in our industry,” said Mary Moreland, Abbott’s divisional vice president of compensation and benefits. “We looked at that a few years ago and said, ‘What are the needs our employees are expressing that we’re not offering?’ One of those was student debt.”
Humpal, who joined Abbott in February as a development quality engineer, estimates he saves $100 to $200 per month through the program and will pay roughly $7,000 less in interest. That will let him pay off his loans four years faster, he said.
“When I became acquainted with the program, it was definitely something that was dear to me because student loan debt is something that’s going to be recurring throughout the foreseeable future,” Humpal added.
More than 44 million Americans have a collective $1.5 trillion in student loan debt . A survey from YouGov on behalf of Abbott found that for 64% of adults, finding a company that offers a student loan benefit is important. That gives recruiters an edge in a labor market where unemployment is at a 50-year low.
“We want employees who have invested in themselves and their education, and we don’t think they should be penalized for that,” Moreland said.
So far, just 4% of companies offer repayment assistance, the Society for Human Resource Management’s 2018 Employee Benefits Survey found, but that’s likely to climb this year.
Fidelity Investments started offering a student loan assistance program in 2016 and now provides workers up to $10,000 over five years. Peloton, the fitness company known for its exercise bikes that stream cycling classes, contributes $100 per month toward employees’ student loans.
“Employers are paying attention to this trend, and they are restructuring their benefit offerings to ensure they have a competitive advantage in being able to recruit talent, especially in a tight labor market,” said Chatrane Birbal, director of congressional affairs for health and employee benefits policy at the Society for Human Resource Management.
The high number of Americans saddled with student loan debt has forced young people to put off buying houses or saving for retirement, she noted, so they’re eager to pay it off quickly.
“What we’re seeing now in the 21st century is the labor market demanding more professional development and education assistance because of the student debt crisis,” Birbal said.
One obstacle for providers, however, is the tax treatment. Not only do employers have to pay a tax on the money they put toward student loan repayment, employees have to report the contributions as taxable income.
“The person who can afford to save for retirement and does that” is able to set aside money without paying taxes on it, said Scott Thompson, CEO of Tuition.io, a firm that helps employers manage their student loan assistance benefits. “The individual who can’t afford to save because of student loan debt has to pay taxes on the employer contribution. That just can’t be right.”
Recognizing the gap between how student loan repayment benefits and tuition assistance benefits are treated in the tax code, a bipartisan group of lawmakers has introduced legislation in the House and Senate to address the matter.
The measure, called the Employer Participation in Repayment Act, would allow companies to contribute up to $5,250 a year per worker tax free. Similar pieces of legislation have floundered in years past, but the proposal is gaining traction.
People are “recognizing the importance of assisting to alleviate this financial burden because it’s serving as an impediment to other life milestones,” Birbal said.
The measure has the backing of major companies including Hewlett-Packard, Starbucks, and Raytheon, and at least one company, athletic apparel-maker New Balance, said it would unroll a student loan repayment benefit once the legislation passes.
Until then, companies are experimenting with different setups.
CSAA Insurance Group, for example, launched a program under which workers can redirect part of their employer-matched 401(k) to paying off the debt. And Thompson cited an unnamed healthcare company that plans to allow employees to convert unused paid time off to debt payments.
“Why would employers more and more do this?” he said. “Because they realize the benefits they’ve had historically don’t work because they don’t apply. These individuals are in a much worse place financially, and companies need to give them the opportunity to direct those dollars toward student loan debt rather than investing in other things.”
Thompson estimates that within the next decade, student loan repayment assistance will become a universal benefit across all U.S. employers.
Even if it doesn’t, Birbal said, “for those competing for a specific type of talent, this could be the benefit that sets them apart and gives them a competitive advantage in a tight labor market.”
