10 Things HR Needs to Know About the End of the CARES Act Student Loan Repayment Pause
Editor's Note: Since the writing of this article, the federal Student Loan Debt Relief program has been blocked due to two court decisions; the Supreme Court has agreed to hear arguments for both appeals in February. In the meantime, the Biden administration extended the federal student loan payment pause into 2023. The US Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.
The COVID-19 moratorium on federal student loan payments owned by the U.S. Department of Education will soon come to an end. In March 2020, student loan borrowers were relieved from making payments on federal education loans as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Over two years later, the paused payments are set to start up again in September 2022.
HR professionals may be trying to figure out how their companies can best help their employees. Here’s what you need to know before federal student loan payments resume.
1. The Latest News
Under the CARES Act, federal student loan payments were originally put on hold for six months. Then the Trump administration extended that deadline to October 2021. Still later, the Biden Administration extended the pause once through January 2022 and again through May 1, 2022 . The latest announcement, made on April 6, 2022 extends the pause on federal student loan repayment through August 31, 2022 .
2. Restarting Payments May Come as a Shock
Employees facing financial challenges and changes due to the pandemic may find resuming student loan payments a struggle, especially after such a long break. More than two-thirds of borrowers say it would be difficult to make payments again, according to a Spring 2021 Pew Charitable Trusts survey of 2,806 respondents. The average monthly federal loan payment as of June 2021 is just under $400. Borrowers with large balances at high rates may pay much more. One consequence: Some employees may need to juggle competing financial priorities, such as retirement and emergency savings, to make room for repayments.
3. Older Employees Also Struggle with College Debt
New grads aren’t your only employees burdened with student debt. Employees who have large balances and extended repayment terms are also likely to be still carrying hefty student loans. In addition, parents routinely take out large PLUS loans to help children pay for college, perhaps even while they continue to pay off their own student loans. Borrowers in their thirties carry the highest federal education loan balances at $40,500, according to data from Educationdata.org, followed closely by people in their forties, with a $40,400 average balance.
4. Student Loan Repayment Benefits Are Now Tax Exempt
Before the pandemic, a growing number of employers were considering student loan repayment benefit programs to help employees reduce debt, lower stress, and increase their overall financial wellness. Government regulations passed during the pandemic have given employers an added incentive. Under the new rules, employers may provide $5,250 tax-exempt annually for an employee’s student loan repayment (or tuition reimbursement) through 2025. Employees don’t have to count the contributions as income.
5. Employees May Face Challenges with New Loan Servicers
Two major federal education loan servicers have not renewed their contracts with the Department of Education. FedLoan Servicing and Granite State Management & Resources are in the process of transferring their loans to other servicers. Borrowers who may have taken out loans with them need to be careful that paperwork doesn’t slip through the cracks or scheduled payments get missed. Employers may want to remind employees to keep an eye out for emails or letters from their loan servicers concerning any changes. In addition, all federal student loan borrowers should contact their loan servicers to review balances and interest rates and check restart due dates.
6. Financial Counseling Can Help Employees Cope
One-on-one counseling with a college financing or personal finance expert can help employees utilize budgeting and planning techniques that can prepare them for the end of the pause and reduce the stress that debt can cause. In addition, counseling can help employees balance between short-term challenges and long-term financial goals.
7. Options Exist for Employees Who Can’t Afford Loan Repayments
For employees who simply don’t have the resources to restart federal student debt payments, employer-sponsored counseling could include a discussion of programs that may offer some relief. Forbearance, for example, allows a qualified borrower to suspend federal student debt payments for a period of time, although interest continues to accrue. And government-sponsored income-driven repayment programs cap monthly loan payments at a percentage of an employee’s discretionary income and often forgive the loan balance after 20 to 25 years of payments.
8. Refinancing May Make Student Loan Payments More Affordable
Refinancing student debt in today’s current low-interest rate environment may help reduce monthly payments for some employees. SoFi’s new student loan refinancing program allows eligible borrowers to lock in today’s low interest rates and continue to benefit from the federal moratorium on federal student loan repayment. Refinanced loans will be disbursed on December 20, with the first payment due on February 1, 2022. (Please note: Interest will begin accruing on disbursement. During the moratorium, no interest is being charged on government student loans. Please note also that after the moratorium, people who refinance will be forfeiting the benefits and protections that come with federal student loans.)
9. Student Loan Repayment Benefits Can Support Diversity, Equity, and Inclusion Efforts
Minorities often carry a disproportionate amount of student debt. African American college graduates, for instance, owe an average of $25,000 more than white college grads, according to Educactiondata.org. Offering solid, well-structured student loan repayment benefits can help employers attract and retain a diverse and talented workforce.
10. SoFi at Work Can Help
SoFi at Work is an expert in the student loan space. SoFi at Work’s student loan repayment program can help you help your employees cope with college financing debt and promote overall financial wellness.
Welcomed by strapped employees with federal student loans, 2021’s pause nonetheless disrupted the student loan landscape. Getting back to normal will mean still more adjustments. If you’re looking for ways to make the transition easier for your employees, SoFi at Work may be able to help.
Photo credit: iStock/Ivan-balvan
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.
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