Debt or No Debt? Your Employees’ Future in the Balance

By Elizabeth Torphy-Donzella - Shawe Rosenthal LLP

May 22, 2019

Debt can alter one’s future trajectory for good or for ill.  The latter is reflected in a recent article in the Wall Street Journal.  Although they are the most educated generation ever in the U.S., Millennials at the tail end of their generation incurred unprecedented debt for college – often six figure debt – then graduated into the Great Recession.  Their employment opportunities were truncated.  As a result, their income potential (and debt repayment capability) has been damaged, seemingly beyond repair. They have collectively put off home buying and starting families, which has ripple effects for the future, from reduced home buying opportunity to delayed or foregone child rearing.

Now, who will pay for us baby boomers as we retire from the workforce and tap Social Security benefits (it’s always about us, isn’t it hippy generation)?

Contrasted with this awful situation is the gift given by Robert Smith, a self-made billionaire.  As keynote speaker at Morehouse College, Mr. Smith announced that he was paying off the student loans of the entire graduating class.  As the Wall Street Journal reported, students and parents began texting each other to see if they had heard it right.  Students of Morehouse, an historically black college, leave with an average debt of $35,000 to $40,000.  For all 400 graduates, the slate is wiped clean!  Graduating into a robust job market, they are fortunate beyond their wildest dreams.

Few will be as fortunate as the Morehouse Class of 2019.  Many employees will enter the workforce with significant debt and the current “menu” of political solutions (wiping out college debt, free college for all) are controversial.  For their part, many employers are willing to help address this pernicious problem but would like to be able to do so without adverse tax consequences for their employees.  Unlike tuition reimbursement, which can be provided by employers tax free up to $5,250 annually, there is currently no tax preferred means to provide such assistance for already-incurred debt.  However, legislation has been introduced to allow employers to provide this same amount to employees annually to help pay off their student loans. The Employer Participation in Repayment Act is pending in both the House and the Senate.

This legislation seems to strike a middle ground by incentivizing the private sector to help solve a problem in desperate need of a solution. Let’s see whether Congress is capable of acting.