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How Employers are Funding Education Loan Repayments?

Pranjal Singhal Pranjal Singhal
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How Employers are Funding Education Loan Repayments?

Education loan burden is increasing on the students with the rising cost of higher education. As the job expectations also remain uncertain, many students are turning their loans into defaults. The Indian education loans saw an almost 150% increase in the Non-Performing Assets (NPAs) in the past couple of years. Employers can help in decreasing this number by supporting their employees in the repayment of education loans.

As of March 2018, there are 2.79 million active education loans in India making up more than INR 80,000 Crore. Unfortunately, more than INR 7,000 Crore of this is lingering in the form of bad loans. State Bank of India Education Loan has been reported with the highest value of NPA. By supporting their employees in the repayment process, companies will also attract more resources.

Reports show that student debt payment has helped companies lure more millennial talent than freebies like gym memberships and evening snacks. Student loan repayment gives employees an assurance of responsibility and develops trust. Some of the companies which are already offering education loan repayment are:

  • Penguin Random House

  • PricewaterhouseCoopers

  • Nvidia

  • Abbott

Repayment Process

It is upon the employers to decide how they choose to repay their employee’s EMIs. While some choose to go for side-by-side repayment, most of the companies prefer reimbursing the amount later on. Companies have to decide between 2 payment options:

  • Matching Contribution

  • Flat Contribution

Matching Contribution

Companies offer a regular matching contribution to employees based on factors like:

  • Employee’s credibility

  • Duration in the company

  • Cost of EMI

Flat Contribution

Irrespective of any of the factors mentioned above, the employer offers a flat contribution to repay the EMIs.

Funding education loan repayment is not quite popular in India yet but is showing tremendous results abroad. It’s high time Indian companies also realize its potential and start helping their employees. Some of the benefits of funding education loan EMIs are:

  • Builds trust among employees.

  • Lowers the increasing NPA rate.

  • Improves employee recruitment.

Did You Know?
India has the highest student loan interest rates in the world.

Tax Exemptions on Loan Repayments

Under Section 80E of the Income Tax of India Act (1961), interest paid on education loans is eligible for tax exemption. Now, whether the assistance provided by companies should be included in this or not is questionable. The assistance provided is currently treated taxable income just as the salary would be.

Even if the assistance is not exempted from income tax, it will be a great relief for the graduates who otherwise won’t be able to save anything for retirement. Employer’s funding of education loan EMIs will bring the NPAs down by a significant amount.