Attracting and Retaining Employees With College Degrees or Higher

Employers competing for talent with college degrees are increasingly encountering the financial impact of student loan debt among their workforce. This debt affects not only employee financial wellness but also retention, engagement, and long-term retirement readiness. As a result, employers may want to consider how existing compensation, retirement, and education benefit structures can be adapted to address this issue.

Student Loan Debt Among Employees

Recent statistics suggest employers should consider accounting for their employees’ and prospective employees’ student loan debt. Possible approaches include (i) adopting or amending education assistance programs under Internal Revenue Code section 127 to include tax-free reimbursement of student loan debt; (ii) amending 401(k), 403(b), and government 457(b) plans that provide matching contributions so that loan repayments are counted as salary deferrals for matching purposes; or (iii) adding some sort of direct-pay option through which employees have their loan payments made directly from their paychecks (likely on an after-tax basis).

Education Data Initiative’s “Student Loan Debt Statistics” reports the following:

• The average federal student loan debt balance is $39,547, while the total average balance (including private loan debt) may be as high as $43,333.
• As of the end of 2025, 10% of federal student loans were delinquent.

Fidelity’s 2026 State of Student Debt study, as reported in its February 2026 press release, highlights several findings:

• Employees with student loan debt are twice as likely to also have medical debt.
• Employees with student loan debt are nearly 50% more stressed about paying for health care than employees without student loan debt.
• Retirement plan participants who receive an employer match for student loan repayments could have an additional $200,000 in savings at retirement.
• Participants in a student debt repayment program typically receive an average of $1,900 in employer contributions per year based on their student loan payments.
• 45% of employees with student loan debt report being more likely to stay with their employer longer if their employer offers a benefit to help them pay down their loans. Those percentages increase to 52% and 47% if we focus on Generation Z and millennials, respectively.

Opportunity for Employers

Based on these statistics, employers seeking to attract and retain employees with college degrees should consider adding a benefit to address the likely student debt of their employee pool to increase productivity through employee stress reduction and garner employee appreciation. Although an education assistance program or retirement plan match on student debt repayments represents an additional cost for employers, employers do not have to pay employment taxes, and employees save on income and employment taxes, potentially increasing the value of this benefit over a comparable raise or bonus.

Automatic enrollment has steadily increased in 401(k) plans to boost participation, with the idea that increased participation can help the plan pass non-discrimination testing, boost employee engagement, and help employees achieve their long-term retirement goals. 403(b) plans and government 457(b) plans do not have the same non-discrimination concerns, but 403(b) plans, in general, are rolling out more automatic enrollment features to boost engagement and achieve long-term retirement goals. Counting loan repayments as salary deferrals for matching purposes can help with all these too.

Minimizing Employer Cost

Employers can also reduce costs through several strategies, including the potential elimination of safe harbor contributions (if matching student loan payments would be sufficient to pass annual non-discrimination testing) and potentially switching from a safe harbor nonelective format (in which all employees receive a contribution) to a safe harbor matching formula (so that only employees who salary defer or repay student loans receive a match).  

More Control With Education Assistance

While an education assistance program can be used similarly, it can more effectively encourage employees to return to school because it allows employers to pay expenses without the employee taking out a loan. Employers that want to encourage employees to return to school to make them more productive or more attractive for promotions, while also being concerned about reduced productivity while employees take classes, can require that classes be offered at local schools and held outside employees’ regular work hours. Other examples of control an employer can optionally integrate include requiring classes to be preapproved so the employer can confirm the classes will help the employee’s performance or likelihood of being promoted and conditioning reimbursement on attaining passing grades.

Focusing on Retention

While any employer addressing student debt should see an increase in its retention of employees with college-level education or higher, education assistance programs can be structured to maximize that retention. For example, if an employee incurs education expenses of $5,000 in Year 1 and the program limits reimbursement to $3,000 per year, that program can reimburse the employee for $3,000 in Year 1 and $2,000 in Year 2. Assuming the employee incurs similar expenses for several years, the education assistance program will reimburse the employee years after the employee incurred the costs, but only if the employee remains employed. Not only would a departure mean a loss of compensation (which could be matched by a competitor) but also a loss of any of those education expenses that would have been paid if the employee remained employed.

In our example, employees would enter their fourth year having spent $15,000 ($5,000 per year for three years) while receiving $9,000 ($3,000 for three years) in reimbursements. Employees leaving employment during that fourth year after incurring another $5,000 in expenses will “forfeit” $11,000. How many employees will walk away from $11,000? How many of your competitors will offer an $11,000 signing bonus to attract that employee? In this way, education assistance programs can make employees more valuable to employers while also making them less likely to leave.

Next Steps

Based on these recent statistics, it makes sense for employers to reassess their workforce and their desire to attract and retain employees with college-level or advanced degrees. Employers should then consider how the use of their salary-deferral-based retirement plan, an education assistance program, or an after-tax direct-pay program can help them achieve their goals.