In some cases, convenience comes at a cost

An earlier version of this post was originally published on the Peanut Butter blog on May 9, 2017 by David Aronson. You can view the original post here

Making payments towards employees student loans via payroll deduction: is it a convenience or does it come with a cost? As several vendors have begun requiring employees to make their minimum monthly student loan payment via payroll deduction as a requirement of Student Loan Assistance Programs, companies may look at this as an added perk that will help employees. What some fail to understand, however, is that they may actually be putting employees at a disadvantage if they choose to administer their program this way.

While processing employee’s loan payments via payroll deduction may seem like a value-add service, the reality is that it may not be all it appears cracked up to be. For one, your employees don’t need this. They almost certainly have a bank and likely set-up direct debit for their minimum monthly payments. Forcing them to make a change may cause a reduction in engagement.

In addition, requiring payments to be made via payroll deduction creates unnecessary complexity for your program and, in some cases, may introduce financial liability. Though technically possible, we advise employers do not process employee payments via payroll deduction. If not for the above, these are two very important reasons you do not want to process employee minimum monthly payments:

(1) Loan servicers incentivize loan holders to set-up direct debit by offering a discount when they do. This is not extended to payroll deductions. Bottom line is that it is not in your employees best interest to move away from direct debit because they lose out on the discount.

(2) Each employee might have a different due date for their loan payment, and that due date might not line up with when you run payroll. This means you add even more operational complexity to account for this or, worse, employee minimum payments are delivered late and they incur penalties. Who is liable if those payments were required to be processed through payroll?


Our recommendation? Keep it simple – tell employees to continue doing exactly what they do today to make their minimum payment and focus your program on providing them with the tools to help manage their debt and offering contributions that will get them out of debt faster.

Have other questions about student loan assistance as an employee benefit? Schedule time with our client services team today by calling 800.913.6651 x3 or clicking below.