The Biden administration’s student loan forgiveness program is expected to help up to 43 million borrowers pay back all or part of their federal student loans. That likely includes many of your employees. In fact, this one-time loan cancellation program could provide a substantial boost to the overall financial wellness of your workforce.
However, the path to forgiveness has not been entirely smooth. Some types of federal loans were omitted at the last minute. And, recent legal challenges have put a temporary hold on the entire loan forgiveness process. Even if the plan goes through, there are an estimated 23 million borrowers who will still be facing federal student loan balances even after debt relief is awarded, and private loans are not included.
Right now, employees with student debt may need your help untangling the headlines, determining if (and when) they should apply for forgiveness, and managing the repayment of balances that this program won’t wipe away.
The First Step: Stay up-to-date
Up to now, loan forgiveness has been on the fast track. On October 17, the government began taking applications, and more than 20 million borrowers have already applied. Unfortunately, the program hit a major road bump on October 21, when a federal appeals court granted a temporary hold on the plan pending consideration of legal arguments submitted by the Biden administration and a coalition of Republican-led states seeking to block the plan.
During the temporary stay, the government can accept student loan forgiveness applications, but cannot process them.
If the stay gets lifted, officials indicate that they will quickly move ahead to implement the program. That means that applications will be processed as they come in through 2023, with a roughly four-to-six-week turnaround time between when a borrower submits an application and when they receive student loan forgiveness.
Officials had been urging borrowers to apply by November 15 to ensure that they receive loan forgiveness before the pandemic-related repayment pause ends on December 31. But until the court issues its next ruling, the timeline on this initiative is somewhat up in the air. If legal challenges continue, experts point out that the Biden Administration could potentially extend the pause on repayments yet again (so borrowers don’t have to start repaying their loans before they are forgiven). But this remains to be seen.
Help Your Employees Get Started
The student loan forgiveness plan would cancel up to $10,000 in federal student loan debt for single borrowers with an adjusted gross income of less than $125,000 a year, or less than $250,000 for married couples. Pell Grant recipients could have as much as $20,000 in student debt forgiven. Borrowers can apply by going to the Federal Student Aid website and clicking “Apply Now.”
To make sure employees are aware of the forgiveness program, consider regular email blasts with news updates and targeted blasts to any student loan borrowers you’ve identified from employer-sponsored debt management programs. You may also want to consider building an FAQ page with information on the application process and program information outlined below. You might even want to set up a hotline that employees can call to get more information.
Recommended: HR Guide to Federal Student Loan Relief
Answer Important Questions
To offer your employees the best, most up-to-date information, you’ll want to be prepared to answer these key questions about the forgiveness program.
What If I Have Private Student Loans?
Many students and parents have taken out private student loans to fill the gap between what federal student loans cover and the remainder of their tuition obligations. Private student loans are not included in the federal student loan forgiveness program. And, unfortunately, it’s extremely rare for private lenders to forgive student loans. Your employees who have private student loan debt may be able to benefit from the repayment alternatives and debt management strategies outlined below.
What If I Have a Federal Family Education Loan (FFEL)?
Many borrowers have older loans from the FFEL program. These are government loans administered by private lenders. Initially, these were included in the forgiveness plan. But, due to a last-minute legal challenge, they are no longer eligible for cancellation. Only borrowers who consolidated their FFEL loan into the federal Direct Loan program by the end of September 2022 will qualify for forgiveness. That means that anyone holding FFEL loans after that date will not be able to get their debt canceled.
Like private student loan borrowers, employees in this situation may benefit from your organization’s student loan benefit programs.
What if I Already Paid My Student Loans?
If your employees paid the entirety of their federal student loans before March 2020 they will not be eligible for forgiveness.
Borrowers who continued making payments during the federal student loan payment pause (which started in March 2020 and is slated to end on December 31, 2022) have more options. These borrowers may contact their loan servicers and ask for a refund for those payments. Borrowers will see their loan balance increase by the amount of the refund, or for borrowers who paid off their loan in full, a loan balance will be reinstated.
What About Taxes?
There will be no federal tax on any loan forgiveness. However, several states have indicated they are planning to tax forgiveness payments. Borrowers will need to check with their state of residence for the latest information.
Are Parent Loans (PLUS) Part of the Forgiveness Plan?
Yes. Federal parent loans also known as PLUS loans are eligible for forgiveness.
PLUS loans are available to eligible parents and graduate or professional students. Some of your employees who are parents of older children have likely taken out PLUS loans. You’ll want to get the word out that they too can benefit from the forgiveness program. One clarification: With PLUS loans it is the parents who must fall under the income cutoffs ($125,000 for a single person, $250,000 for a married couple) not the student.
Help Employees Manage Remaining Student Debt
Many of your employees may need help managing the remainder of their student debt after forgiveness, or if their student debt does not qualify for forgiveness.
Also keep in mind that, come January, employees with federal student loan balances above the forgiven amount will likely have to resume repayment of their federal student loans. This may put serious pressure on some workers — especially those who are already struggling to make ends meet in the face of high inflation.
In recent years employers have begun to offer an array of financial wellness benefits designed to help employees manage student loan debt. The forgiveness plan shouldn’t take the focus off of these initiatives, which might include the following:
Student Loan Repayment Plans
Benefits designed to help employees repay student loans were gaining traction among employers even before the pandemic. But new government rules offer even more incentive. The CARES Act, which was signed into law in March 2020, allows companies to make up to $5,250 in student loan payments per employee per year. Employers’ contributions are completely tax-exempt. That means employees won’t pay tax on this added “income,” and employers don’t owe payroll taxes on these funds. The provision has been extended through 2025.
401(k) Debt Paydown Programs
Saving for retirement is often one of the first financial goals sacrificed to student debt. A 401(k) paydown program can help workers balance these two priorities.
How this creative benefit works: Employers agree to pay matching funds to an employee’s 401(k) as long as that employee contributes a certain minimum percentage of their total pay toward their student loan debt. Some organizations are matching percent for percent in an effort to attract workers.
Student Loan Debt Counseling
You can help your employees handle unforgiven and private student loan debt by offering one-on-one counseling sessions with personal finance or student debt repayment advisers.
For instance, HR leaders may need to provide information about alternative payment plans for workers who can’t make their student loan payments once they resume, including filing for forbearance or one of the government income-driven repayment programs income-driven repayment programs. The latter is especially important in light of proposed changes that are expected to take place in 2023 that will make the government’s income-driven repayment program more accessible and affordable.
Specialized advisors can also help employees who are paying high interest on a private (or federal) student loan determine if they could benefit from refinancing student loans. Those with federal loans, however, will need to understand that private loans are ineligible for federal loan programs, including forgiveness.
Student loan forgiveness may offer a great opportunity for your employees to manage student debt repayment better and help relieve some of the stress that carrying large student loans can trigger. But it’s not the total answer.
Now more than ever HR pros may want to pay close attention to the holistic education benefits they offer and consider how they can best support employees burdened by student loan debt (that may, or may not, get forgiven). SoFi at Work may be able to help.
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SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.