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Weigh Pros, Cons of an Employer Paying Your Law School Debt

Companies nationwide are starting to offer a new benefit to debt-ridden employees, assisting them with paying down their student loans. And, law firms are leading the charge in offering this hot new perk, benefit experts say.

This benefit offers workers help with student debt repayment on a monthly basis -- usually around $100 per month. Law firms plan to offer higher amounts, too: either with a cap, such as $10,000, as the maximum; or as a lifetime benefit, as long as the employee works there.

In 2015, only 3 percent of employers surveyed by the Society for Human Resource Management offered student debt repayment as part of their benefits, but this number is expected to grow, many experts say.

"The area where we have seen the most interest in the last few months is the legal community from law firms," says Tim DeMello, founder and CEO at Gradifi, whose company is launching this style of benefit for two major New York-based law firms in June 2016. "There is a large amount of debt there with graduate degrees."

Students who graduated in 2015 who borrowed to pay for law school took out around $110,618 in loans, according to data submitted to U.S. News by 183 ranked institutions.

The majority of law students -- around 90 percent -- use loans to finance their education at law school, according to the American Bar Association.

[Follow these steps before borrowing money for law school.]

In time, many employers will offer this benefit, especially at law firms because there is such an acute need, says Chris Duchesne, vice president of client services at EdAssist, which manages student loan repayment programs for several Fortune 500 companies.

"Once you start seeing leading law firms offer this, it's going become more prevalent and pretty rapidly , because it's going to be required to compete," Duchesne says.

As this benefit becomes available at law firms, students interested in this option should examine the pros and cons.

Melissa Logan, 26, who is in her second year of law school at the University of Indiana's Mauer School of Law, estimates her total debt from both undergraduate and law school to topple over the $100,000 mark. Logan says this benefit would be valuable.

"It would be a huge help," says Logan, who plans to pursue the private law firm track. "If I was between two firms and was having tough decision between making a choice, then that would tip the balance."

[Learn how graduate student loans differ from college debt.]

Pro: Employer debt assistance programs pay down the size of your debt quicker and reduce the amount of interest paid.

Participating in a repayment program can dramatically reduce the time frame it takes to pay a student loan whether the loans are refinanced or not, Duchesne says.

A law student graduate who has more than $100,000 in debt at 6.8 percent, participating in a program that assists with $200 a month in payments, saves $8,008 in interest and 23 months of time in repayments over 10 years, according to a Gradifi interactive calculator.

For most of those in the legal field, the employer contributions range between $200 and $250, says the Gradifi CEO.

[Get tips and advice on paying for law school.]

Con: Debt repayments can affect your career decisions.

The typical salary for a Class of 2014 law school grad at a large firm with more than 500 employees is $160,000, according to the National Association for Law Placement, which provides starting salary data annually for graduating law students. According to data submitted to U.S. News by 182 ranked schools in an annual survey, a law school grad from the Class of 2014 can expect around $50,000 for a public sector job.

Students are aware that salaries pale in comparison to those paid by large law firms, says Abraham Pollack, the associate dean of professional development and career strategy at George Washington University Law School.

"A common refrain from law students is that they want to start in the private sector and then transition to the public sector once they pay off loans," says Pollack. "While I am supportive of debt repayment programs, critics may argue that these programs serve as 'golden handcuffs' to young attorneys."

Logan, who initially enrolled in law school with the idea of working in the public sector, switched to pursuing a private track after an unpaid summer internship at a judicial office in Chicago.

"I really can't afford to be unpaid or underpaid again," says the aspiring attorney who has been offered a summer associate position at a Chicago-based law firm.

Con: The benefit of having your employer pay down your student loans is taxable income.

These rewards that help an employee, such as a law school grad, pay down debt are taxable and reported as earnings on a W-2 form.

"An award from an employer loan assistance program is taxable as income," says Heather Jarvis, an attorney and student loan expert, who points out that asking for a bump in salary in lieu of this benefit is more flexible. "A higher salary can be used for student loans or anything else, whereas loan assistance cannot."

But, loan assistance being taxable might become a thing of the past. That could happen if a new bill, the Employer Participation in Student Loan Assistance Act, is passed by Congress. The bill, currently in committee, seeks to extend the tax exclusion of employers contributing to tuition assistance, up to $5,250 a year, and also exempts this repayment benefit from being taxed as gross income.

Trying to fund your education? Get tips and more in the U.S. News Paying for Graduate School center.

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