Student-loan repayment support could become the new 401(k), but it comes with a big catch.
The challenges borrowers face paying off their student loans have become so ubiquitous that a robust industry has developed around employers helping their workers pay down those debts.
A whole industry of middlemen has cropped up to provide the technology and platforms employers can use to help pay off their workers’ student loans. In addition to CommonBond for Business, the unit of CommonBond partnering with Empower, companies like Gradifi, which First Republic Bank bought in 2016, Fidelity and Tuition.io are also in the business.
David Klein, the chief executive officer of CommonBond, said his company’s partnership with Empower is evidence that the market isn’t waiting for lawmakers to change the tax treatment of these benefits before moving forward. In the case of employer-sponsored health insurance, a tight labor market and worker demand helped fuel its expansion. During World War II, employers faced a labor shortage that was so worrisome to economists that they feared companies would push salaries too high and fuel inflation to compete for workers. In response, then president Franklin Roosevelt froze wages.
And finally, the opportunity for employers to incentivize student loan pay off in some way. That could be through a direct payment toward their student loan — which would be taxed as income — or by matching a payment the borrower makes on their debt with a contribution to their 401, allowing the benefit to remain untaxed.
Keep an eye on your student-loan bills: A 2017 report from the Consumer Financial Protection Bureau found that payments made by employers towards their workers’ student loans were tripping up student-loan servicers, the companies hired by the government to be the point of contact with federal student loan borrowers. That means borrowers should pay attention to how these payments are being applied and any changes that may result in their plans to pay off their student loans.
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