As the number of companies offering student loan repayment assistance continues to grow, more and more borrowers are able to get a bit of extra help on their student debt.
Due to the unique nature of employer assistance programs, they can actually complicate student loan repayment strategy. This problem falls firmly into the category of good problems to have, but it is still important for borrowers to consider different strategies in order to get the most out of their employer programs.
Employer Student Loan Repayment Assistance Basics
No employer is generous enough to just pay off their employees student loans. Instead, employers will typically pay a monthly stipend to employees for use towards their student debt.
Many of these employer contributions share similar characteristics:
- A monthly cap – Employee student debt may be huge, but there is a fixed amount each month that most employers are willing to pay.
- A lifetime cap – Not all employers have a lifetime cap, but many will only allow enrollment in the program for a set term of years. Others have a fixed total payment number that they will not exceed.
- Percentage Matching – Some employers will only pay a portion of the monthly bill. For example, an employer who pays 50% would cover $100 on a $200 per month student loan bill.
Finally, many employers will require some form of verification of the borrower’s monthly student loan bill.
Know the Rules
Because there are a wide range of possible rules to employer plans, understanding the exact terms is critical.
Within the confines of any individual employer’s rules it may be possible for borrowers to tweak their loans in order to come out ahead.
Changing repayment plans – Many student loans, federal and private, have repayment plan choices. Borrowers who have unused employer benefits may be better off by picking a more aggressive repayment plan. For example, if an employer will pay $300 per month, but a borrower’s monthly student loan bill is only $150, the borrower can pick a plan with a higher monthly payment in order to maximize the benefit at work.
Similarly, a borrower whose monthly payment far exceeds the assistance from work may be better off picking a longer repayment plan. This lowers the monthly payment on the loan, meaning the employer will be paying a greater portion of the employee’s monthly bill. However, this strategy can tricky for borrowers as increasing the repayment length can result in more interest spending over the life of the loan.
Utilizing Refinancing Options – The traditional advantage to student loan refinancing is the ability to get a lower interest rate. However, a refinance can also help borrowers get the most out of an employer assistance program. Most refinance companies offer student loan refinancing is 5, 7, 10, 15, and 20 year terms. By utilizing the services of a student loan refinance company, a borrower can tweak repayment in order to get the most out of an employer assistance program. Refinancing at a shorter repayment length will also help secure lower interest rates.
Don’t assume that coworkers understand the programs rules or how to best utilize it. Many otherwise intelligent people may not be financially savvy. The best approach may be different for two people in exactly the same job. This is something that everyone should evaluate on their own.
Employees Who Don’t Get Assistance
Sadly, the majority of employers do not offer any sort of student loan benefit. The good news is that many more employers may start offering a student loan repayment assistance program thanks to some new legislation. The bill would allow employers to contribute $5,250 tax free towards employees student debt. The proposal isn’t law yet, but it stands a good chance of passing thanks to bipartisan support.
Employees trying to convince their employer to offer a student loan assistance program would be wise to focus on the benefits for the company rather than for the employee. That starts with a discussion on recruiting top talent. Finding skilled employees can be a huge challenge. Offering student loan assistance will attract college educated talent. These programs also help employers retain employees.
Use Good Judgment
Stretching out repayment length may mean an employer pays a larger portion of your student loan bill, but the extra spending over the life of the loan due to interest may end up costing the borrower more. Spending $2 to save a dollar is never a wise decision.
Keep in mind that employer programs are almost always subject to change. At any point an employer may change the rules or add new lifetime contribution limits. Don’t bank on employer contributions being a certainty. Employers may change their mind, and employees can find themselves in new jobs.
Finally, take advantage of the program but not your employer. If employers feel taken advantage of, or begin to think that it is a bad investment, they will discontinue the program. Alienating an employer to save a few extra bucks each month is usually a mistake.