The Covid-19-related pause on federal college loan repayments is finally coming to an end. And with broad one-time forgiveness blocked by the Supreme Court, many of your employees will soon be facing a significant financial challenge — resuming college loan payments after a three-year hiatus or, in some cases, starting them for the first time.
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, federal college loan payments were suspended, and interest rates were set to 0% in March, 2020. The pause has been extended multiple times since then. However, with the recent signing of the debt ceiling bill, President Biden no longer has the legal authority to extend the student loan pause. This means nearly 43 million borrowers need to prepare to restart or start repayments.
Interest on federal student loans will resume on September 1. However, the Education Department needs time to generate and mail billing statements, which means the first post-pause payment likely won’t be due until October 1. In addition, borrowers won’t be reported as delinquent if they are late with payments through September 2024.
The October 1 deadline gives borrowers a brief window to get ready. It also gives employers an opportunity to help employees prepare for repayment and to make sure the transition goes smoothly.
Why Focus on Student Loan Repayment?
An employer student loan program can help address a major source of financial stress within a workforce and, in turn, boost both employee engagement and productivity.
The payment restart is daunting for many. While a large portion of people with federal student debt were making payments before the payment pause began in 2020, they haven’t done so for several years. Those who have graduated in the last three years, on the other hand, will be making payments for the first time.
With consumer costs and interest rates rising, it may be challenging for many borrowers to resume or start student debt repayment. Employees struggling to come up with funds for repayment may sacrifice key elements of financial wellness, like retirement contributions and emergency savings.
We often think of student debt as a recent college grad issue, but more employees than you might imagine are burdened by student loans. Nearly a third of all federal student loan debt belongs to borrowers in their 30s, according to EducationData.org . Many workers in their 50s and 60s actually carry student debt. In fact, the average 62-year-old federal borrower owes $40,560 in federal educational debt, including Parent PLUS loans (which were included in the payment pause).
Offering student loan repayment support as part of an overall financial wellness program also gives your organization an edge in retaining and recruiting a large portion of the workforce with student loans. Given the persistently tight labor market, it’s more important than ever for companies to stand out from the crowd.
How Employers Can Help
At SoFi at Work, we encourage a holistic approach to student loan repayment. That includes helping employees make the most of the time leading up to the restart of payments and encouraging them to develop a better understanding of how student loan repayment fits into their current budget and long-term financial goals.
Consider these four simple-but-effective action points to help your employees meet their repayment goals.
1. Provide a Financial Health Assessment Tool
One of the best ways to determine what you can do to promote financial wellness among your employees is to ask them what they need. If you haven’t already, you may want to design an online financial wellness assessment survey that analyzes four pillars of financial security — spending, saving, debt, and future goals — and encourage all employees to participate.
An effective self-assessment survey enables you to take a measure of the financial well-being of your workforce and lets you see firsthand the financial struggles your employees may be going through. In addition, when employees take a thoughtful, well-written survey, they’re not just inputting information; they’re also thinking through their own financial wellness strategy. Many online assessment tools, such as SoFi at Work’s, provide recommendations on the next steps based on how people feel about their current situation.
Whatever assessment tool you choose to use, be sure that student debt and the end of the payment pause are part of the survey.
2. Help Employees Manage Repayment
One of your main goals is likely to help employees budget in a way that allows them to resume loan payments without jeopardizing other aspects of their financial health. Providing employees with one-on-one counseling sessions with a financial planner or student debt repayment adviser can assist those returning from the payment pause as well as those who are carrying private college loans. Advisors can also help borrowers with federal loans determine if they qualify for other government-sponsored forgiveness programs or the new Saving on a Valuable Education (SAVE) plan , which will cut payments for many borrowers in half.
In addition to financial counseling, SoFi at work offers access to an online Student Loan Debt Navigator. This is an intelligent tool that allows employees to sync all of their debt accounts and get personalized repayment advice, such as how to pay off their loans faster or whether they might qualify for any forbearance or forgiveness programs.
3. Help Employees Understand the Importance of a Good Credit Score
As employees evaluate their student loan options in the face of the repayment deadline, many may determine that refinancing large student loan debt may help ease the month-to-month strain. Employers can counsel workers on the importance of a good credit score when applying for student loan refinancing and other debt.
Consider giving your employees tools to check their credit scores, as well as information on how to improve them, such as offering credit counseling or credit-building workshops. SoFi at Work offers employees access to a dedicated Student Debt Coach, who can help individual borrowers assess their current student loans and credit profile, and determine if a refinance is a worthwhile option.
Establishing good credit is an important component of any financial wellness program that can help employees improve their financial circumstances, whether that’s making student loan payments more affordable, qualifying for a mortgage, or getting better rates and terms on credit cards and other types of loans.
4. Consider Employer-Sponsored Student Loan Benefits
The CARES Act did more than offer the repayment pause. It also included a provision that encourages employers to offer student loan repayment benefits. Employers can now provide up to $5,250 annually for an employee’s student loan repayment through 2025. These payments can be made directly to the employee or to the student loan carrier.
Employees won’t pay income tax on contributions made by their employers toward educational assistance programs, yet the employer also gets a payroll tax exclusion on these funds. This change has encouraged many firms to start offering student loan repayment benefits.
What’s more, the SECURE 2.0 Act which passed the House on March 29, 2022, addresses student loan debt by permitting employers to make matching contributions to retirement plans based on employees’ student loan payments. This can be a stand-alone benefit, or part of a bigger benefits package. The provision goes into effect January 1, 2024.
Using a 401(k) match to help employees pay off student loans doesn’t reduce the amount of the student loan, but it does help reduce the problems workers with student debt often have in saving for retirement.
A large share of the U.S. workforce has student loan debt, and, after a break of three years, payments on federal student loans will resume on October 1, 2023. As a result, many workers may struggle to resume (and, if they are recent grads, start) these payments.
A financial wellness program that includes student loan support is an opportunity for employers to reduce employee stress, improve retention and engagement, and set themselves apart in the marketplace.
SoFi at Work offers an array of tools that can help your employees manage student loan repayment, including financial health assessment surveys, one-on-one financial counseling, an online student debt navigator, and student debt refinancing and repayment platforms.
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