Employer student loan repayment: A strategic guide for boosting retention in 2025

As companies look for new ways to attract and keep top talent, many are getting creative with their benefits packages. Employer student loan repayment is gaining traction as a standout program, offering companies a way to differentiate from the competition and address a real financial pain for many employees.

Since 2021, the percentage of companies offering student loan repayment benefits has doubled, jumping from 17% to 34% by the end of 2023. Currently, employers can offer up to $5,250 combined in tax-free student loan repayment and tuition assistance per employee through 2025, thanks to the Consolidated Appropriations Act.

Student loan repayment can create a strategic advantage that helps strengthen employee loyalty. Here's what to consider when launching a repayment program that fits your workforce.

Why offer an employer student loan repayment program?

With U.S. student loan debt exceeding $1.7 trillion, many employees feel the financial weight of their education long after graduation. Companies can reduce financial stress by helping employees manage this burden, directly impacting worker productivity and satisfaction.

Beyond financial relief, student loan repayment benefits can build loyalty. According to HR Executive, student loan support can improve employee retention, making workers more likely to stay with companies offering this benefit. In fact, over 85% of employees say they'd commit to a company for five years if it helped pay their loans.

In short, offering this benefit can help your organization build a committed and engaged workforce. If you're looking to improve retention, student loan repayment support can be one path to having a unique edge in a competitive employment market.

How employer student loan repayment programs work

Student loan repayment programs typically involve direct contributions from the employer to help pay down an employee's balance. Here are some common program structures to consider.

Direct monthly contributions

In this case, the employer makes regular payments toward an employee's loan. Even small contributions can help reduce employees' loan principal and save on interest.

Matching contributions

Similar to 401(k) matching, this option lets employers match an employee's payments up to a certain amount. This approach encourages employees to engage in debt repayment.

Tenure or performance-based payments

Some companies offer payments tied to employee milestones, such as years of service or performance goals. This structure can build loyalty by rewarding employees.

Lump-sum or signing bonuses

Some employers may consider providing a one-time lump-sum payment toward student loans as an incentive for new hires.

Each option allows employers to align a potential program with budget and goals. The key is selecting a structure that supports the company's workforce needs and financial resources.

Potential tax benefits of student loan repayment programs

Aside from the opportunity to increase recruitment and retention efforts, these loan repayment programs can offer organizations some tax benefits.

Temporary tax advantage

One of the most compelling reasons to offer an employer student loan repayment program is the temporary tax advantage available through 2025. Through Dec. 31, 2025, employers can offer up to $5,250 annually in tax-free student loan repayment and tuition assistance per employee. This benefit allows employers to make substantial contributions toward an employee's loan balance without the amount counted as taxable income for the employer.

Educational assistance flexibility

Typically, educational assistance programs cover expenses like tuition, books and fees. But, since 2020, they now include principal and interest payments on employees' qualified student loans. These payments can be made directly to the lender or reimbursed to the employee, providing flexibility in administering the benefit.

This tax-free provision expires at the end of 2025 unless Congress extends it. Employers looking to leverage this benefit should consider implementing programs sooner rather than later to maximize the tax savings for both the company and its employees.

For employers without an educational assistance program, setting one up can offer a valuable edge in attracting and retaining talent. These programs must be formally documented and follow IRS compliance requirements. For additional details, consult the IRS guides Employer's Tax Guide to Fringe Benefits and Tax Benefits for Education.

4 tips for implementing a student loan repayment program

Starting one of these programs involves careful planning to ensure it aligns with your company's budget and goals. These four steps can help your company create a program that meets workers' needs and budgets while maximizing their satisfaction.

1. Define contribution levels and limits

Choose an amount that fits your budget. Setting a cap, such as the maximum tax-free amount of $5,250 per year, can help control costs while maximizing tax advantages.

2. Establish eligibility requirements

Determine who qualifies for the program. For example, eligibility could be based on tenure, job role, future work commitment length or full-time status.

3. Promote the benefit

Ensure current and prospective employees know about the program. Feature it in recruitment materials, benefit education programs and company-wide updates. Highlighting it through an effective communication strategy can improve interest and engagement.

4. Explore financial education resources

If budget constraints make a full repayment program difficult, consider offering financial wellness resources. Workshops and in-person educational programs can demonstrate your care about employee financial health.

Making student loan repayment a strategic benefit

With student loan debt impacting millions of workers, a repayment program can help make a difference while reducing financial stress. In turn, this can help improve mental health and build long-term loyalty.

By taking advantage of the tax-free contributions available through 2025, employers can provide meaningful support to employees and add another tool to their retention strategy. Whether through direct monthly payments or educational assistance programs, repayment can be a powerful addition to a benefits package.

Optavise is your benefits partner

Optavise is a trusted partner, guiding employers and their employees through benefits choices, including voluntary benefits, benefits administration and year-round advocacy services that reduce costs and increase benefits engagement.