With the support from student loan lenders, human resources professionals, and non-profits focused on combating growing levels of student debt, U.S. Reps. Rodney Davis, a Republican from Illinois, and Rep. Scott Peters, a Democrat from California, introduced new legislation this week that encourages employers to pay down a portion of their employees’ student debt.
Called the Employer Participation in Student Loan Assistance Act, H.R. 795 allows private companies to provide workers with tax-free money to put towards their student debt. The lawmakers likened it to the now ubiquitous 401(K) plan offered by over 513,000 companies and used by close to 80 percent of full-time workers.
“Seven in ten college seniors last year graduated with student loan debt – which now represents the second highest form of consumer debt,” said Davis in a press release announcing the legislation. Davis pointed to the fact that student debt, which stands at $1.3 trillion in the U.S., is forcing borrowers to delay purchasing a home, buying a car, or saving for retirement. By enabling companies to offer student loan reduction as a tax-free benefit, the politician argues that it will aid employees with crippling debt while improving worker retention for participating companies. After all, if an employee knows that their company will help them pay off their student debt, then they may not be so quick to leave.
Under the proposal, employees could offer up to $5,250 in tax-free benefits annually, but the funds must be used to pay off student debt. For employers, not only can they use the benefit as a recruitment and retention tool, but they would also get to write off the benefit to their employees. Already a handful of large companies offer this benefit without the tax breaks including Fidelity Investments, PWC, and Aetna.
It’s also popular with startups because it’s a great way to lure and keep young talent. While saving for retirement is important, many young workers can’t look five years into the future let alone forty. To many working graduates, the first step towards financial success is paying down student debt. Now, companies and politicians alike are recognizing this priority and providing the resources to accomplish such a financial initiative.
“Just as allowing employers to offer tax-free tuition assistance has enabled more Americans to advance their education, offering this same incentive for student loan payments will speed up the repayment process so that graduates can begin to make investments such as buying a home, starting a family, or saving for retirement,” said Peters in the same press release.
Author: Donna Fuscaldo
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