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June 12, 2020 / 12:53 AM / 25 days ago

How organizations can help employees find financial peace of mind

If you ask employees what they are most stressed about, COVID-19 aside, chances are they will mention their finances—and student loans may be one of the reasons finances are at the top of their list. Today, about 45 million Americans have an average of $35,397 in outstanding student loans, totaling more than $1.6 trillion in student loan debt, according to the Department of Education.

This financial burden can be overwhelming to employees, who say student loans are a top reason for delaying starting a family, moving out of their childhood home, or even saving for the future, according to a 2019 PwC survey. That survey states that only about one-third of employees are saving for retirement, and those not saving cited other expenses and paying off debt to be the primary reasons.

Additionally, in a study done by the National Association of REALTORS® Research Department and American Student Assistance®, 83% say that student loan debt is the biggest factor delaying them from buying a home. “Nearly half of all millennial employees have at least one student loan, and 80% of them say that their student loan has an impact on their ability to meet their other financial goals. Even baby boomers are not exempt; while just 10% of baby boomers have a student loan, the effect may be more significant given that they are nearing retirement,” according to the survey.

While employers have been leveraging benefits like student loan assistance or repayment programs to help address the related financial burden within their workforce, adopting these new benefits has not always been easy due to their tax implications. Today, however, there is a solution that is focused on helping employees with student loans and those employers who wish to support them. A provision built into the CARES Act—part of the 2020 stimulus passed by Congress—addresses employer contributions earmarked for employees’ student loan debt. Under the new law, the pretax treatment of employer-provided contributions of up to $5,250 per employee annually toward educational assistance now includes contributions to qualified education loans.

Easing the Burden

There are a number of ways employers can offer such a benefit, including a single lump-sum payment or regular monthly payments for a finite or indefinite period. “With these contributions, employees will see an instant boost to their bottom line,” explains Alex Dontoh, a professor of accounting at New York University’s Stern School of Business.

“According to Federal Reserve statistics, the monthly average student loan payment is $393. A monthly loan payment of $393 is quite a large amount considering that the average before-tax salary of a college graduate in the U.S. is about $50,000,”

he says. This may be why about 17% of all monthly student loan payments are more than 31 days late.   

Per the Society for Human Resource Management (SHRM), another consideration for organizations is the fact that having an employer student loan repayment program can help not only employees but the collective U.S. workforce.

“These types of benefits will be critical post-COVID during recovery efforts,” says Chatrane Birbal, SHRM’s senior advisor for government relations. “Following COVID-19, there will be greater investments in health research, virology, and vaccinology, which will require higher education. In addition, individuals will seek opportunities for reskilling and upskilling. These investments will positively contribute to the U.S., the workforce, and the economy.”

There are already companies that are seeing strong results from their student loan repayment programs, and with 79% of employees stating they are happier at their company because they offer a student loan benefit, now might be the time to make a meaningful financial well-being impact. To learn more about how your organization can implement an employee student loan repayment program, visit www.gradifi.com.

The E*TRADE Financial family of companies provides financial services, including trading, investing, banking, and managing employee stock and financial wellness benefit plans.

E*TRADE Financial Corporate Services, Inc. recently acquired Gradifi, Inc. Gradifi offers financial wellness benefits focused on solutions for employers to provide their employees student loan and college savings benefits.

The laws, regulations, and rulings addressed by the products, services, and publications offered by E*TRADE Financial Corporate Services, Inc. and its affiliates are subject to various interpretations and frequent change. E*TRADE Financial Corporate Services, Inc. and its affiliates do not warrant these products, services, and publications against different interpretations or subsequent changes of laws, regulations, and rulings. E*TRADE Financial Corporate Services, Inc. and its affiliates do not provide legal, accounting, or tax advice. Always consult your own legal, accounting, and tax advisors.

© 2020 E*TRADE Financial Corporation. All rights reserved.

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