Webinar Recap: CARES Act Impact on Student Loan Employer Benefits
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Among one of the many relief measures tucked into the historic trillion-dollar CARES Act passed in March is a provision that allows employers to make tax-free contributions to their employees’ student loan debt.
The CARES Act incorporates provisions of The Employer Participation in Repayment Act, which is a win for both employees and employers. It gives employers the opportunity to provide some relief to their employees with tax-free student loan contributions. It’s also a standout way for employers to both attract and retain their talent.
But, there’s a catch. The provision only extends until the end of 2020, making it a limited-time offer for employers—at least for now.
SoFi hosted a webinar with a panel of experts on April 7 to offer strategies and resources to employers on how to support their employees with the recent legislation.
Moderated by Janet Fields, SoFi’s Director of Business Development, the panel included:
• David Amendola, Senior Director, Intellectual Capital Leader, Benefits Advisory & Compliance, Willis Towers Watson. David is a specialist in governance and compliance, and has over 20 years experience advising in all aspects related to employee benefits.
• Nat Hoopes, Executive Director, Marketplace Lending Association. Nat has spent over a decade working at the intersection between financial services and public policy.
• Rob Lavet, General Counsel, SoFi. Rob helped draft the original EPRA legislation that eventually became the provision passed in the CARES Act.
• Brian Walsh, Senior Manager, Financial Planner, SoFi. Brian leads the financial planning team at SoFi, meeting with members on a regular basis to discuss their student loans.
The webinar tackled everything from the provision itself and how employers can utilize it, to the future of financial wellbeing employee benefits in the workplace. Read on for webinar highlights and responses to frequently asked questions.
Employer Student Loan Contributions Under the CARES Act
With the CARES Act in place, employers may contribute up to $5,250 to their employees’ student loans, tax free, until December 31, 2020. Before the act, 12-37% of an employers’ contribution towards employee student loan debt was taxed federally.
Under CARES, 100% of the employer contribution will go directly into paying off employee student loan debt, which could make a not-insignificant impact on their debt burden.
This provision applies only to loans held by the employees for their own education. That means parent PLUS loans, which allow parents to take out federal student loans to pay for their children’s education, would not apply. However, the policy extends to nearly every other student loan, both private and federal.
Limited Time Offer, For Now
This provision will “sunset” at the end of 2020, explained Amendola. That means while employers should take the time to understand the provision, they’ll need to act relatively quickly if they want to extend this benefit to employees.
Maybe, suggested Amendola, depending on a company’s finances, the benefit translates to one lump sum or one time payment to employees towards the end of 2020.
There’s no stipulation that the payment must be made monthly, or even be recurring. However, because the contribution would be tax-free until the end of the year, a contribution benefit would make the maximum impact on employees in that time frame.
The provision within the CARES Act may have a set timeframe, but there is still a chance it could become law, Lavet explained. It’s oftentimes easier to extend a policy that’s already enacted than to pass it in the first place.
However, for the policy to be extended, companies will need to adopt and enact this policy for Congress to see its benefits. Unless there’s a significant take-up, this provision will likely be temporary, Lavet suggested.
Employee Financial Wellness
If employers choose to make this contribution before the end of the year, they’ll not only see maximum impact with a tax-free payment, they’ll also be joining the growing trend of financial wellness as an employee benefit, explained Walsh.
Research shows that employee performance within the workplace is tied to many factors outside of the 9-5, including financial stress. When employees face the strenuous burdens of student loan debt, it’s not uncommon for that outside stress to impact work performance.
In an unprecedented time where outside stressors may be front of mind for many employees, employer benefits, such as student loan contributions, can provide some relief and perhaps even help improve workplace performance.
In Amendola’s experience, prior to COVID-19, he spoke with clients about how employer benefits could attract and retain talent.
He doesn’t think that conversation will change in the coming months; in fact, the financial wellbeing of existing and new employees will be even more important than before.
In a time of uncertainty, several participants in the webinar asked panelists, “Why institute these policies now?” Amendola suggested employers look at the big picture. Right now, there’s no guarantee this provision will stick around.
But, making a tax-free contribution to employee’s student loans this year can provide meaningful benefit to your team with maximum, tax-free impact.
Even if it’s just a one-time payment, it could be a memorable, compelling benefit. In addition, if more companies take advantage of this provision now, it could have long term positive effects on the economy, as it will free up employees’ funds to invest elsewhere, like in real estate or the stock market.
The CARES Act is providing some hope for those impacted by the COVID-19 pandemic. It’s providing unemployment assistance and relief from federal student loan payments and interest, among other benefits.
As an employer, the CARES Act is providing an opportunity to contribute to employee’s student loans, tax-free. And during a period where student loan interest has been paused, tax-free employer contributions to those same loans could have an even greater impact. This limited-time provision could be a compelling benefit for employers and employees alike.
Interested in learning more about how the CARES Act and employer student loan repayment could benefit a company? Ready to make this a workplace policy, but not sure where to get started?
HR professionals can reach out to [email protected] for a full version of the webinar or to learn more about how the student loan contribution program could benefit their team.
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