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Posted October 11, 2019 by

Why employers should offer 529 college savings and tuition reimbursement plans

The cost of higher education is exponentially higher for the Millennials who recently graduated and Gen Zers who are currently enrolled in one-, two-, and four-year colleges and universities. A Baby Boomer may have paid $10,000 for tuition, room, and board in the 1960s. By the 1980s, the same would have cost a Gen Xer about $50,000. Today, the same will cost a Gen Zer $250,000. A very small percentage of students don’t face that kind of sticker shock as they’re extremely affluent and pay for that out-of-pocket, perhaps with savings, or they’re amongst those with the lowest income but qualify for the largest merit scholarships. For the vast majority of students, financing hundreds of thousands of dollars for their education is the reality. 

It is pretty common for student loans to carry interest rates of 6.25 percent, so about double what home mortgages cost, despite the student loans being of lower risk than home mortgages as you can’t discharge student loan debt through bankruptcy. Also normal is a 20-year repayment period. The cost of a $250,000 loan with an interest rate of 6.25 percent and a length of 20 years results in a monthly payment of $1,827.32, which is about $2,500 before tax. In other words, just to cover your student loans, you need to earn $30,000 a year. Even if your cost of education is half of that, you need to earn about $15,000 a year just to cover your student loans. 

Employers that create 529 education savings and tuition reimbursement plans effectively give their participating employees a substantial raise without it costing the employer anything. Money contributed to a 529 plan is tax-deductible, so if the employee contributes $10,000 a year, they’re going to save about $2,500 a year in taxes. That employee has therefore just effectively been given a $2,500 raise by their employer, without that raise costing the employer anything. Even more dramatic is tuition reimbursement, as that doesn’t cost the employee anything. At College Recruiter, we offer tuition reimbursement of $1,500 per year. If the employee’s tax bracket is 25 percent, that’s worth $2,000 to them. We are, effectively, giving those employees a $2,000 per year raise.

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Posted in Advice for Employers, Benefits, Economic Indicators, Informational (About CR), Millennials, Paying for School, Recruiter Articles, Salaries and Compensation, Saving for College, Scholarships, Student Loans | Tagged