401(k) Specialist Issue 1 - 2021 - 23

401(k) PROVIDER PERSPECTIVE
Student Loan Benefits 2021: What Advisors
Need to Know
By Gregory Poulin
THE FEDERAL GOVERNMENT recently
made it significantly easier for employers to
help pay down their workers' student loans.
Here's what else you need to know about
student loan benefits for 2021.
The CARES Act allowed exclusion of up to
$5,250 from an employee's gross income for
employer payments to principal or interest
on student loans. This provision was originally
set to expire at the end 2020, however
the $900 billion coronavirus stimulus package
passed at the end of 2020 extended this
tax break for five years, through Dec. 31,
2025. While still a temporary measure, it is
widely expected to be made permanent.
The tax exemption allows employers to
pay down their employees' student loans
on a pre-tax basis, similar to a 401(k) match.
Both the employer and employee can
save on federal payroll and income taxes if
employer payments are made to a " qualified
education loan, " defined as a student loan
in the name of the employee and used for
their education with federal, private, and
refinanced student loans all being eligible.
Education loans for spouses, children or
other dependents do not qualify.
Employers have increasingly come to
recognize that if they are going to require a
college degree as a prerequisite for employment,
then they must play a role in solving
the student debt crisis. Employer-sponsored
student repayment has been a growing
trend in employee benefits in recent
years with one in 10 employers offering it as
a post-tax benefit. That figure is expected
to increase by 300% in 2021 to one in three
employers now that student loan benefits
are pre-tax, according to the Society for
Human Resource Management (SHRM).
In total some 47 million Americans carry
$1.7 trillion in student debt, a figure that
is expected to surge to past $2 trillion by
" One of the
reasons student
loan benefits are
so appealing is
because of their
profound impact
on an employee's
ability to become
debt free. "
2024. With 30% of employees carrying
student loan debt, it should not come as a
surprise that forward-thinking employers
are looking to capitalize on this new tax
exemption as a powerful recruiting and retention
tool, as well as a means of improving
financial wellness for their workforce.
Every year 70% of college students are
graduating and beginning their careers with
an average of $40,000 in education debt
that will take 22 years to pay off. As a direct
result of their student loans, employees are
often forced to delay saving for retirement.
Student loan borrowers report significantly
higher levels of financial stress that
has been shown to directly impact their
performance in the workplace, according to
Willis Towers Watson.
When one takes the tremendous impact
that student debt has on employees into
consideration, it is obvious why workers
are drawn to employers that help with their
student loans. When young adult job seekers
were asked in an American Institute of CPAs
study, " What percentage of your benefit compensation
money would you allocate for student
loan debt repayment vs. an alternative
benefit? " respondents chose more money
going toward student loan repayment, ahead
of all other benefits, including 401(k) match,
health insurance, and paid time off.
One of the reasons student loan benefits
are so appealing is because of their profound
impact on an employee's ability to
become debt free. Most student loan benefit
programs require employees to continue
making their regular payments. This allows
employer contributions to be applied on
top of that as a secondary payment, directly
to the principal of the student loan.
From our experience at Goodly working
with hundreds of clients on student loan
benefit programs, the median employer
contribution is $100 per month, but can
range from $50 to $200 per month. It's also
not uncommon for employers to start with
smaller contributions of $25 per month and
increase those payments as budgets allow.
With the help of a $100 per month employer
contribution, the average employee
student loan borrower can become debt
free 25% to 30% faster.
Gregory Poulin is the CEO of Goodly, a leading provider
of student loan and college savings employee
benefits. He can be reached at greg@goodlyapp.
com or on Twitter @GregoryMPoulin.
ISSUE 1 2021 | 401kSpecialist.com
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401(k) Specialist Issue 1 - 2021

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