Congress should incentivize private employers to help employees repay student loans

As the founder of a company that has helped more than 2 million students avoid or resolve student loan delinquency, I am keen to this country’s growing student debt crisis. Unfortunately, many proposed solutions simply make it easier to obtain loans. But now Congress is considering legislation by Rep. Rodney Davis (R-Ill.) and Sen. Mark Warner (D-Va.) that might actually make a difference.
The Davis and Warner proposals would offer tax incentives to private businesses to help employees repay student loans. After all, if employer assistance with paying off student loans is good enough for federal employees, it should be good enough for private-sector workers. According to the U.S. Office of Personnel Management’s (OPM) Federal Student Loan Repayment Program, Calendar Year (CY) 2014, report: “During CY 2014, 33 Federal agencies provided 8,469 employees with a total of more than $58.7 million in student loan repayment benefits.”
{mosads}Let’s start with the problem: across the country, Americans owe more than $1.3 trillion in student loans, with the average borrower carrying more than $35,000 in debt. This is the nation’s leading source of non-housing debt, exceeding credit cards and auto loans. In recent surveys, such as the latest Allstate/National Journal/Heartland Monitor poll, young people list paying off college loans as one of their leading concerns.
Since finding and keeping new and better jobs is an important reason why people borrow money for college, student aid programs should involve employers.  But, as of now, only 3 percent of American employers provide some sort of student loan repayment assistance, according to the Society for Human Relations Management (SHRM). The major obstacle – which the Davis and Warner bills address — is that employer payments are taxable income for the employee, so the full benefit is not realized. Also, employers and employees often don’t have individualized access to professional advice about how best to optimize their student loan repayment plans, unlike such other benefits as 401K retirement plans and healthcare coverage provided by employers.
By enabling private sector employers to assist employees in tackling their student loan debt, the Davis and Warner bills will create large-scale social, economic and cultural benefits, just as 401K plans did for retirement planning.  Here’s how it will work:
First, when private businesses begin paying for student debt as part of recruiting and retention, students will take notice of which skills employers value most and align their college and course selections accordingly. This will cause a cultural shift, as students better understand that, in order to get new and better jobs, they need to learn the skills that employers need. There will be an increased focus on the return on investment in education, leading to higher graduation and job placement rates.
Second, this program will help unbanked and under-banked employees.  According to the Federal Deposit Insurance Corporation, more than 67 million adult Americans and more than 24 million children were unbanked or under banked in 2013-2014. For student loan borrowers who are unbanked or under-banked, payroll deductions will help them avoid the expense of money orders and postage, since payment with credit and debit cards is currently not allowed.
Third, creating parity in the tax code for student loan debt repayment assistance and tuition reimbursement will help employers hire candidates who have already invested the time in acquiring the skills their companies need while continuing to support continuing education for existing employees. The existing tax incentives for tuition reimbursement have encouraged employers and employees to accept arrangements that sometimes don’t work. While employers wait for their employee to gain new skills by attending school, the employees can become distracted and/or stressed from balancing responsibilities at school and at work.
Fourth, the bills would help level the playing field between large and small employers. Experience suggests that these programs are offered mostly by large companies. But the nation’s five million small businesses play a crucial role in innovation, job creation and economic growth. Providing tax credits will help small businesses compete for skilled employees.
Fifth, better financial planning will help employees understand the benefit of clearing the decks of student loan debt before moving on to saving for retirement.  Generally, student loan interest rates are higher than returns on most 401K plans. For recent and not-so-recent graduates, it is beneficial to pay down debt before beginning investment for retirement.
New incentives for advanced education and skills training and better, more accessible financial management tools benefit the entire economy, as well as individual employees and employers. While tax reform may be on the back burner this year, I would encourage Congress to support the Davis and Warner bills and work to solve – not simply talk about – the student loan crisis. Anything less would be a detriment to current and future borrowers.

Rajan is CEO of Ceannate Corp, a leading business process outsourcing firm focused on the students and institutions in the post-secondary education sector.

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