Help Employees to Get Educated...or Help Them For Being Educated?

Whether looking for a new job out of necessity, feeling stagnated at work, or any other reason, there will be an item listed under the requirements of nearly any position; a specific level of degree required. This level of education may range from being a high school graduate to a doctorate, but the value employers place on education is evident.

In a 2018 survey, The Association of American Colleges & Universities found that 82% of executives and 75% of hiring managers believe that it is critical, or even essential, to complete a college education. A degree is vital as employers are generally more confident in employees with higher education, are more satisfied with recent college graduates they hire, and value the skills and learning experiences students have learned at school. As one executive responded, "A good college can instill a combination of hard job-specific skills and soft real-world skills that can allow a job candidate to contribute to our organization quickly. The degree demonstrates the individual's ability to commit to a path and complete an objective."

Forecasts show that the importance of college will only continue to increase. A study by Georgetown University shows that in 1973 only 28% of jobs required a degree, but in 2020 that number leaped to an astounding 65%.

This value of education is why the number of companies offering tuition reimbursement benefits continues to increase. But is this benefit genuinely worth it? Is there a better way for employers to find highly educated candidates?

It is vital to note the difference between tuition reimbursement benefits and student loan repayment assistance regarding an employer's educational benefits.

With tuition reimbursement, an employee pays the up-front cost of tuition, and the employer will pay them back a certain amount towards that tuition. Employers may choose to pay the employee back upon program completion or for each year of schooling; however, they must also understand the annual limit they can reimburse. Through this benefit program, an employer can reimburse an employee up to $5,250 annually without being considered income, therefore keeping the employee from paying taxes on the reimbursement. However, an employer can choose to give more, but any amount exceeding that $5,250 will be considered taxable income. The key element of tuition reimbursement is that this program applies to an employee's future education. But if most jobs require candidates to have some level of higher education already, does this program provide as much of a benefit as it may seem?

Alternatively, student loan repayment assistance is a similar benefit an employer can now offer employees and has some distinct advantages. Under the Consolidated Appropriations Act (CAA), a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, employers can now make non-taxable payments towards an employee's existing student loans. Like tuition reimbursement, these donations are also non-taxable, up to $5,250. This program has a direct appeal to those who have already attended school without the intention of going back.

Why Choose Tuition Reimbursement?

Valuing education does not equate to needing new employees that already went to school. According to a Society of Human Resource Management (SHRM) survey, the average cost-per-hire for companies is $4,129, including recruitment, screening, technology, and training costs. These costs do not include a new employee's salary; another considerable expense to shoulder if hiring new employees is unnecessary.

In this case, tuition reimbursement may be the most appropriate course of action, increasing the number of highly educated employees without incurring the cost of hiring new employees. The Lumina Foundation reports that in the factors of promotions, transfers, and turnover, employer tuition reimbursement has a return on investment of 129%.

One of the keys to a successful tuition reimbursement program is awareness. SHRM reports that, as of 2018, 51% of businesses offer tuition reimbursement benefits. However, in a  Lumina Foundation survey, only 2-5% of eligible employees use this program, and only 43% of employees know their employer offers this benefit.  If an employer chooses to provide this benefit, it would be wise to encourage and promote it.

Compared to student loan repayment assistance, tuition reimbursement may also be a more attractive option due to the youth of student loan repayment assistance and questions regarding its congressional longevity. Student loan repayment assistance was not a tax-free benefit until the Consolidated Appropriations Act was signed into law on December 27th, 2020, and is currently extended only through 2025. Conversely, tuition reimbursement has a much longer history. It is difficult to determine a definitive date as to the start of these programs as it becomes a case of perspective. Many may see the GI Bill of 1944 as one of the earliest forms of tuition reimbursement programs, albeit through the federal government rather than private employers. However, the modern version covered under Section 127 of the Internal Revenue Code, allowing the $5,250 per year, was first introduced in 1978 as a five-year provision, receiving frequent extensions.

Why Choose Student Loan Repayment Assistance?

One clear advantage of student loan repayment assistance is that the employer can help employees that have already entered the job market and were hired with the higher education that executives and hiring managers desire. However, it also makes the company more attractive to potential candidates for future employment.

76% of respondents in an American Student Assistance organization (ASA) study stated that if a prospective employer offered a student loan repayment benefit, it would be the deciding or a contributing factor to accept the job. Not only would they be more willing to take the position, but they would also be more likely to recommend the company to other job-seekers. An Oliver Wyman survey also reports that among working professionals with student debt, 90% say that having a student loan repayment benefit would impact their decision to stay with their current employer.

We can use a fictional scenario to illustrate how significant student loan repayment assistance is for borrowers. In our example, we are looking to hire a recent graduate. Our candidate has currently borrowed $60,000 at a 6.8% interest rate. They opted for a 10-year standard repayment plan which results in a monthly payment of approximately $690. After interest, they can expect to pay back roughly $82,860. They will use any additional money given to them as an additional payment on top of the minimum $690. Suppose an employer chooses to provide them with the maximum annual amount allowed under the Consolidated Appropriations Act, $5,250, or $437.50 a month. In that case, rather than taking ten years, the employee will pay off their loans in only five years and four months while saving about $11,264 in interest. Even if they do not receive the maximum amount, say $200 a month, they will still pay their loans off almost three years sooner, saving approximately $7,000 in interest.

While in that scenario, the candidate is using the money to use on top of their current payments, they could also find it helpful to make the minimum payments. Educationdata.org reports the average student loan payment is $393, which means our potential employee's loan payment is almost 176% more than the national average. Assuming the candidate is single with no dependents, their average monthly expense will be $3,189, according to the 2019 Consumer Expenditure Survey from the Bureau of Labor Statistics. Some experts recommend that student loans should make up, at most, about 15% of your budget. In the candidate's scenario, their monthly payment makes up about 21.6% of their expenses. Given the maximum of $437.50 to fund their minimum payment, it would decrease to only 8%. As a new graduate, this could mean the difference between staying financially secure or finding themselves in debt with defaulted student loans.

This scenario is especially likely when looking at a history of how much a college education costs. According to educationdata.org, in 1963, the average cost of a 4-year degree was $42,220. As of 2020, that number has increased to $101,584, an increase of approximately 240%. This problem only further exacerbates when from 1989 to 2016, the cost of college increased eight times faster than wages.

Today's college graduates aren't looking for help going back to school; they are looking for help because they went to school.

Why Not Both?

Just because one option may have particular advantages over another does not mean an employer is limited to choosing only one of the two. Whether an employer wishes to offer both benefits comes down to the feasibility of doing so. A company that can do both may find a significant return on its investment.

What Other Options Are There?

While tuition reimbursement and student loan repayment assistance are the most direct forms of education benefits, employers who cannot offer employees and candidates such help can provide them with student loan help by other means. The best way to do so is by educating their employees on ways to manage their student loans.

Examples of such help could be simple budgeting lessons, exploring various repayment options, or examining different refinancing choices. It could be better to help employees understand their loan forgiveness options, which could forgive their entire loan balance. Examples are income-driven repayment forgiveness, public service loan forgiveness, and teacher loan forgiveness. Before discussing these options with employees or candidates, an employer must know that these loan forgiveness programs apply only to federal student loans, and refinancing federal loans will convert them to private loans. These are essential factors to consider when working with employees or candidates on their best options.

Income-Driven Repayment Forgiveness (IDRF)

While eligibility for other federal forgiveness programs depends on the borrowers' employer, Income-Driven Repayment Forgiveness (IDRF) is available to all federal borrowers regardless of employer or employment status. Since there is no restriction on employers, this program is excellent for all employers to discuss with employees.

IDRF requires the borrower to make payments under one of four repayment plans; Pay As You Earn (PAYE), Revised Paye As You Earn (REPAYE), Income-Based Repayment (IBR), and Income Contingent Repayment (ICR). Eligibility for each plan depends on the borrower's marital status, loan type, loan history, and whether or not the borrowers' loans are in default.

Depending on the loan type, payment plan, and if they used the loan for an undergraduate or graduate degree, a borrower could expect total forgiveness on their loan balance, including interest, in 240 or 300 qualifying payments on their loans.

As the name suggests, an "income-driven repayment" plan bases its monthly payment on a borrower's discretionary income, calculated through their annual adjusted gross income and household size. Therefore IDRF is most beneficial to those with low incomes and a large household. Still, many borrowers could see lower monthly payments through one of these payment plans regardless of income and household size. Also, note that because those factors can change, the borrower must complete an annual recertification process. If they do not, payments will not count as "qualifying payments," delaying the time until receiving forgiveness.

Employers should encourage employees and job candidates to schedule a consultation with a student loan expert. Counselors can help determine which repayment plans the employee/candidate is eligible for and even provide an estimate of the monthly payment they can expect under an income-driven repayment plan.

Public Service Loan Forgiveness (PSLF)

If you're an employer in the public sector, employees (and, therefore, any candidates the business chooses to hire) will be eligible for this program as long as their loans are federal student loans. Introduced in 2007, Public Service Loan Forgiveness (PSLF) is similar to IDRF. It also requires the borrower to be on an income-driven repayment plan and make a certain amount of qualifying payments on their direct, federal loans. However, the advantage of PSLF is that the borrower will see their entire loan balance, both principal and interest, forgiven in 120 qualifying payments, half as much as those pursuing IDRF. Another benefit of PSLF is if the employee decides to leave the public sector, any qualifying payments used towards PSLF will also count towards IDRF, meaning that the borrower will not have to start from 0 payments.

On the surface, this program may sound simple; however, reports from the Department of Education show that of the PSLF submissions between November 9th, 2020, and April 30th, 2021, only 2.1% of applicants received forgiveness through the program. In other words, 97.9% of borrowers who applied made ten whole years' worth of payments (given they did not use any forbearance or deferment) only to miss out on the forgiveness they deserve.

Convoluted annual recertifications, vague definitions of what constitutes a "qualifying payment" or "direct loan," insufficient aid from loan servicers, and general misinformation spread online all contribute to a borrower's rejection.

Because PSLF forgives the borrower's entire loan balance, this should be one of the most promoted programs by public service employers. If your business is part of the public sector, have your employees contact reputable student loan forgiveness experts to prevent misinformation and discover how much this program can assist them.

Teacher Loan Forgiveness (TLF)

With Teacher Loan Forgiveness (TLF), we address a particular type of employer; Title 1 schools. To be eligible, a teacher must:

• Have taught at least five consecutive years at a Title 1 school
• Worked full-time in the classroom during those five years
• Have their state teaching certification
• Have a bachelors in the area they teach for all five years
• Not have an outstanding balance on any student loans on or before October 1st, 1998

This program grants $5,000 of forgiveness to teachers who meet the qualifications; however, math or science teachers in middle or high school and ESE certified teachers could be eligible for $17,500 of forgiveness through this program.

It is important to note that teachers can only receive forgiveness through TLF once and cannot be working towards TLF and PSLF simultaneously. Traditionally this makes TLF the better option for teachers with lower loan balances and PSLF preferable for those with higher loan balances.

A conversation with a student loan expert can help determine how much a teacher is eligible for and discuss their best options regarding their loan balance.

Conclusion

Using data from the National Center for Education Statistics and US Social Security measurements, college costs have increased by 217% between 1985 and 2019, about 10.31% annually. However, wages have only risen on average 3.63% annually in the same period. Unfortunately, the cost of education shows no signs of slowing down meaning, if everything stays the same, fewer and fewer people will be able to afford a college education.

Yet, we cannot deny the value of education. This conflict of cost versus value (and in some fields, necessity) is where employers can make a statement. Whether it be offering tuition reimbursement or student loan repayment assistance, helping employees get an education, or helping those who already earned an education, an employee will not just see the value in their education but the value of their employer as well.