Employer Student Loan Aid Tackles College Debt Crisis
Federal student loan repayments – and interest on that debt – have been suspended during the pandemic, thanks to federal COVID-19 relief legislation. However, as of October 2021, some 44 million borrowers who owe an estimated $ 1.7 trillion will have to start paying off debt that has grown exponentially over the past decade and a half.
Many are ill-prepared to do so. This massive debt is a source of consternation and concern not only for those who owe money, but also for their employers.
Employers recognize the emotional harm that employee debt can cause. This stress affects their mental health and job performance – and organizational productivity.
For many students, the pandemic – and the shift to distance learning –did not reduce tuition fees. Credit reporting firm Experian notes that in 2020
Student loan balances of borrowers increased 9% and total student debt increased 12%.
“Student loan payments resume on October 1, which will be a shockwave for millions of borrowers,” said Will Sealy, co-founder and CEO of Summer, a company that helps borrowers track their student loans and sign up for repayment plans. “As you lie down in the complexity of the pandemic, employees will face immense stress and high levels of defaults, leading to a workforce that is financially at risk.”
There are many reasons for employers to consider ways to help employees minimize this burden and the emerging opportunities for employers to do just that.
Student Debt Relief Opportunities
A fall 2020 AIG Retirement Services survey, collecting responses from 664 public sector employees who repay federal student loans, found that a significant number of respondents
would otherwise use the money spent on monthly student loan payments for other financial responsibilities, such as contributing to retirement savings and investments (47%) or adding to their emergency savings fund (43%).
“Student loan debt has become an increasingly big issue,” said Rob Scheinerman, CEO of AIG Retirement Services. “It was a big topic in the last election cycle and it continues to be a concern in Washington. Student loan debt is increasingly believed to represent a financial crisis along with concerns about savings- retirement from our country. “
The government has taken steps to tackle this growing problem, he noted:
- The CARES law (aid, relief and economic security) against the coronavirus, which took effect in March 2020, suspended federal student loan payments until September 30, 2021, and temporarily set the federal student loan interest rate at 0%. It also allowed employers to pay up to $ 5,250 in contributions to the repayment of tax-exempt student loans until December 31, 2020. Before the CARES Act, tuition assistance provided by the employer until December 31, 2020. at $ 5,250 was exempt from tax under section 127 of the tax code, but the loan-repayment contributions were taxable.
- the Consolidated Appropriation Law 2021 (LAC), passed in late 2020, extended the CARES student loan provisions to allow employers to make tax-exempt loan repayment contributions of up to $ 5,250 through 2025. Employers and loan holders strongly recommend that Congress make non-taxable employer contributions for students. repayment of the loan is a permanent benefit.
The Society for Human Resource Management (SHRM) “has long advocated for the expansion of employer-provided education assistance to include student loan repayment as a benefit and was pleased to see the benefit. extended until 2025, “said Chatrane Birbal, vice-president for public policy at the SHRM. “This benefit will provide some relief to employees who are currently paying off their student loan debt and will also give employers more flexibility in designing benefit offerings for recruitment and retention purposes.”
Tuition Assistance and Loan Repayment Benefits
More than half of employers offering student loans today also offer a tuition reimbursement benefit, said Charounson (Char) Saintilus, founder and CEO of Stubenefits, which provides loan repayment solutions to employers and businesses. employees.
Notably, he said, “in a tuition reimbursement program, a lump sum” – typically up to $ 5,250 – “is paid to the employee, often annually. Student loan contributions are paid in installments, a small, low-risk investment for the employer if an employee were to leave suddenly. “
He added, “Some employers are wondering if they should replace their tuition reimbursement program with a student loan benefit. These two plans under section 127 serve different purposes, and we do not advise employers to do so.
Focus on financial well-being
“The 15-month hiatus in student loan payments and the fact that millions of people will suddenly have to start paying again in October is unprecedented,” said Aaron Smith, co-founder of Savi, a student loan repayment technology company. . “Borrowers,” he added, “are confused and worried about when the payment suspension ends. Human resources managers … can help educate employees and ensure they profit fully available programs when payments resume. “
Savi and Student Debt Crisis, a nonprofit student debt advocacy organization, surveyed 58,733 student loan borrowers last December
how they behaved during the pandemic. Among the results:
- 52% of borrowers rated their financial well-being as poor or very poor since the start of the COVID-19 pandemic in March 2020. Only 21% rated their financial well-being as poor or very poor before the pandemic.
- Borrowers of color were more likely to report missing a rent or mortgage payment, experiencing food insecurity and homelessness, or being unable to afford health care and drugs during the pandemic due to their loan repayments students.
The tax advantages offered by the CARES Act, extended by CAA, have prompted more employers to consider offering a loan repayment benefit, said Jennifer Nuckles, executive vice president and head of the group’s business unit. of the SoFi loan refinancing company.
Sealy said employer interest is piqued not only because of the newly enacted tax break for employer loan contributions, but for a broader reason: employee welfare. “We hear a lot of employers telling us [that] they think about financial well-being now, more than ever, because of the horror stories that have emerged from the pandemic, ”he said. Loss of work, pressure on family members, the burden of having to go to school at home or take care of others – all have taken their toll.
Scheinerman also sees employer interest in promoting financial well-being as a major driver behind more employers considering student loan benefit offers. Student loan debt, he pointed out, “is the second type of debt in America – only less than mortgage debt – and, for young employees who are just starting their careers, senior debt management. student loans is a major concern. “
[Related SHRM article:
Student Debt Debate Has Implications for Everyone]
TekSynap, a technology company that provides information management services to government agencies, is an example of a company that has chosen to offer student loan assistance to employees. Their reasoning, said Ruben Hormostay, a human resources specialist at the company, has to do with both attracting and retaining top talent.
The company, through its plan with SoFi, will match employee payroll-based student loan repayments of up to $ 1,000 each year, or match employee contributions to a 529 college savings plan of the same amount. , as part of the whole company.
financial wellness program.
The loan repayment matching option, which the company began offering in September 2018, enables TekSynap to “ensure that the majority of employees reap the rewards of the company’s commitment to the education and financial well-being of all employees, wherever they are. their financial / educational journey, ”Hormostay said.
Hormostay’s advice to other employers is “do it!”
“I would recommend all businesses to try and implement this if and when the budget allows,” he said.
More employees will take advantage of this benefit if they understand it and keep hearing about it.
“Keep communicating about the benefits after an employee starts and allow year-round enrollment,” Hormostay advised. “Keeping the lines of communication open is the key.”
He also stresses the importance of ensuring that HR staff and management “are available and equipped with the information they need to answer questions”.
SECURE Act 2.0 – A possible change of game?
“Small employers who are hesitant about the cost of implementing and maintaining a student loan are excited about the prospects of SECURE Act 2.0,” said Saintilus of Stubenefits, referring to the bipartisan law on securing a student loan. a strong retreat, passed unanimously by the House Ways and Means Committee on May 5.
The legislation, among other things, would allow an employer to make tax-exempt contributions into an employee’s 401 (k), 403 (b) plan, or SIMPLE IRA, to match deducted student loan payments. on the employee’s pay. This would “thus allow borrowers to save for retirement using tax-exempt employer contributions from their retirement account, while simultaneously paying off their debt,” said Mr. Saintilus.
“Some employers are waiting for SECURE Act 2.0 to pass and are considering taking advantage of this option as part of a student loan program,” he noted.
Lin Grensing-Pophal is a freelance writer in Chippewa Falls, Wisconsin. Stephen Miller, CEBS, contributed to this article.