Employers Offer Student Loan Repayment Assistance Programs

on January 16, 2017

Several employers offer student loan repayment assistance programs, known as LRAPs, to recruit and retain recent college graduates. Studies have shown that many recent college graduates care more about repaying their student loans than retirement contributions. Employer LRAPs also improve employee morale and reduce employee stress.

 

The design of employer LRAPs varies but there are several common characteristics:

  • The employer makes monthly payments directly to the lender in addition to the borrower’s regular monthly student loan payments
  • Some employer LRAPs match the employee’s monthly loan payment, up to a monthly or annual limit, while others make a fixed monthly contribution
  • Some employer LRAPs have a cumulative limit, while others continue indefinitely until the employee’s student loans are repaid in full
  • Most employer LRAPs are restricted to student loans and do not include parent loans
  • Some employer LRAPs are restricted to federal student loans and do not include private student loans
  • Some employer LRAPs come with a service requirement, where the employee agrees to work for the employer for at least a minimum period of time
  • Some employer LRAPs are limited to full-time employees

Contributions made by an employer LRAP are considered taxable income to the borrower under current law. Federal and private student loans otherwise are not subject to prepayment penalties.

 

Employer LRAPs are most common in high-demand fields, such as nursing, science and engineering, among others.

 

Impact of Employer LRAPs

 

Suppose an employee has a total of $35,000 in student loans with a 5 percent interest rate and a 10-year repayment term. The monthly payment is $371.23. The student loan debt will be fully repaid in 10 years (120 payments) totaling $44,546 ($9,548 total interest).

 

If an employer provides $100 a month through a LRAP, the student loan debt will be fully repaid in 7.5 years, shaving a quarter off the repayment term. The cost to the employer is about $8,900. The borrower pays a total of $33,066 ($6,967 in interest), saving $11,480 ($2,581 in interest).

 

But consider that LRAP benefits are taxable and therefore will increase the employee’s tax liability. Assume that the borrower is in the 25 percent tax bracket. This means that additional income, like a LRAP benefit, will increase the employee’s taxes by a quarter of the extra income. So $8,900 in LRAP benefits will cost the borrower an extra $2,225 in taxes.

 

Even so, the employee still saves a net of $9,255. This figure is greater than the total employer LRAP contributions because of interest savings from the LRAP contributions.

 

Companies with LRAPs

 

According to the Society for Human Resource Management (SHRM), only 4 percent of employers provided loan repayment assistance programs in 2016, up from 3 percent in 2015. The number is expected to rapidly grow.

 

Company

Annual Limits

Cumulative Limit

Aetna

$2,000

$10,000

Chegg

$1,000

None

ChowNow

$1,000

 

CommonBond

$1,200

None

Connelly Partners

$1,200 (year 1)

$1,500 (year 2)

$1,800 (year 3)

$2,100 (year 4)

$2,400 (year 5)

$1,000 (year 6)

$10,000

Federal Agencies

$10,000

$60,000

Fidelity

$2,000

$10,000

First Republic Bank

$1,200 (year 1)

$1,800 (year 2)

$2,400 (year 3)

None

Gradifi

$3,000

$10,000

Kronos

$500

None

LendEDU

$2,400

None

Martin Health System – Nurses

$2,000

$6,000

Martin Health Systems – Pharmacists

$4,000

$12,000

Memorial Hermann Health System (TX)

Not Specified

Not Specified

Nataxis Global Asset Management

$1,000

$10,000

NVIDIA

$6,000

$30,000

Penguin Random House

$1,200

$9,000

Powertex Group

$1,200

$7,200

PwC

$1,200

$7,200

SoFi

$2,400

None

Staples

$1,200

$3,600

Tuition.IO

$1,200

None


In addition to these employer LRAPs, there are also student loan repayment assistance programs for federal and state government employees.

 

LRAPs for Volunteer Service

 

Even if you don’t have a job, you might be able to get loan repayment assistance through volunteering. Education awards received through the AmeriCorps and Peace Corps programs can be used to pay down federal student loans. SponsorChange is a private organization that facilitates student loan repayment by volunteers.

 

Companies that Manage Employer LRAPs

 

There are several companies that help employers create and manage loan repayment assistance plans, including:

 


 

When financial aid and federal student loans aren't enough to cover all college costs, consider financing the gap with private student loans. Shop around to find the loans that best fit your needs.

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