It seems that some employers are paying portions of loans for new grads.
If your college senior did not have any loans, would you/they consider quickly filing a FAFSA and taking a small federal loan (unsubsidized) to apply to their last semester — and then take advantage of an employee benefit to pay off the loan.?
What do you see as the pros and cons?
My daughter’s first employer offered student loan payment assistance, but there was an alternative benefit for employees that didn’t have loans – and my guess is that would usually be the case. That is, there were $X dollars of annual benefits that were available to employees, and paying toward a student loan was one option-- but there were other choices.
Given loan origination fees, I don’t see the point of borrowing simply for the sake of hoping that some future employer will then offer a benefit that would include repayment. Any such benefit would be taxable income – so doesn’t it just make more sense to negotiate for a higher salary or signing bonus, or help with relocation expenses, etc., if that’s an option.
@calmom thank you for those points worth considering.
Sure, but it’s taxable income, i.e., gotta pay income taxes on any cash so received. (It’s also bad HR policy and that is why it won’t become commonplace.)
Why do you think it’s bad HR policy?
In my daughter’s case, her first post-college job was with a nonprofit, so overall pay was on the low end… which made the extra benefits offered particularly attractive and important. The salary itself wasn’t negotiable.
My son also had a job during college with minimal pay but a student loan benefit… that was a position with Americorps and he used that benefit to pay off his remaining student loan balance within a few weeks after he graduated.
calmom:
extra cash for loan repayments is just extra cash. No different than a hiring or annual bonus. It’s more taxable income. Instead of giving every new hire a $1k raise, the company can save money by offering just some of them $1k loan repayment cash.
But what makes it bad HR IMO is if you give the loan repayment cash only to employees with outstanding loans. So a kid who lives at home and attend a juco, transfers to teh instate public and gets a degree on the cheap with no loans is disadvantaged relative to someone who racks up loans at a private sleep-away college. If those employees are in the same department doing a similar job, one gets more pay. What if the degree on the cheap was a female and the private sleep away college employee was a guy?
just using an extreme hypo to make a point on how its not a good idea to treat similar employees differentially by HR benefit policy. Its even worse if it ends up with protected classes treated differentially. Of course it is likely that protected classes will have more loans than non protected class, so maybe the non-discrimination test is easy to pass.
Just my $0.02. I’m sure others will have a different pov.
As I noted in my original comment, my daughter’s employer made the same dollar benefit available to all employees, just in a different form. I think the employee had to make a specific election, and it had to be something that was paid or applied to something else – that is, not simply available in cash. But one year my daughter attended a conference and I think she told me that came out of the same fund that was for the student loan debt – not extra money because she had debt, but $X per year, that she could choose to allocate in different ways.
However, I’d point out that it is always going to be the case that various HR benefits can be allocated in different ways among different employees. At job #2 my daughter had good health insurance, but when she got married, she opted to go on her husband’s plan, which was even better insurance. She didn’t get extra dollars from her own job to make up for the health insurance premiums she no longer needed. And at the same time that my D made that election to forego a benefit, my SIL gained a financial advantage over his single co-workers who did not have spouses or kids to add to their policies.
Some employers offer benefits to help with adoption expenses or infertility treatments – that is another benefit that will selectively be used by some and not others.
In most cases, down the line the employees are earning differential pay anyway. That can vary for all sorts of reasons.
One of the reasons S was at the top of the list of prospective employees was because he had no loans for repayment, even though his prospective employer did advertise it had a program to assist repayment. It does give the student more breathing room and makes them more attractive candidates.
Likely that part of accepting assistance from employer with repayment is obligating yourself to remain with employer for xx months/years and pay the sum back if employee terminated prior to xx date.
To the employer and the employee, it is just additional income, and the employer is controlling that income and where it goes. It is not a protected benefit like insurance, a 401k matching program. adoption benefits, .
If the company has a cafeteria plan, then it might be fair to all employees as the ones without student loans might be spending those extra dollars on a gym membership. but it is just income, and taxed that way.
DS20 did take such a loan for his last semester knowing his employer offered a repayment benefit. He saw it as a way to have cash flow to cover his transition to the real world (apartment, basic furnishings, work wardrobe, etc) that might have otherwise lingered too long as credit card debt. The loan was used to pay his university while his summer and school year earnings could therefore be used for these startup expenses. Since he has no other loans, we agreed it was reasonable leveraging.
Understand, calmom, but to the Company, it’s just payroll cash, an additional compensation expense. (Instead of raising salaries, your D’s company chose to add a feel-good benefit.)
Your D actually makes out since the conference attendance – assuming job related – is not taxable to her bcos its a normal business training expense. OTOH, the other ee’s that receive a loan benefits really receive additional taxable income. Now, of course, the question arises, does the company NOT send loan-benefit-recievers to attend any training conferences throughout the year?
@bluebayou – when my daughter worked for that agency, the conference attendance was job-related perk, not a work requirement. She was too far down on the totem pole to be expected to be attending an academic conference – but it was something of an extra privilege to be allowed or invited along to one.
I’ve run across some interesting articles on this:
This article gave a good example of the benefit plan of one company (Estee Lauder) - it’s $100 a month toward the student loan debt, capped at $10K - so limited to $1200 a year, and it would be exhausted in the 8th year of employment - not the situation where employers are simply shelling out to pay off humongous student loans, nor in most cases coming anywhere near to paying off the full balance. Just a little help along the way.
“More than a third of employees said student debt repayment was a must-have benefit, according to Unum, but that percentage leaps to 55% for millennials”
So basically, if 55% of your younger workforce wants something – there’s a value in offering it — but probably not in place of even more sought-after benefits like paid family leave and flexible/remote work options. (But the student loan benefit might be easier and cheaper for the company to offer)