When the Federal Student Loan Payment Pause Ends: 7 out of 10 Borrowers Say They Will Need to Cut Expenses, Find a New Job, and More
In late December, the Biden administration extended the pandemic-related pause on federal student loan payments until May 1, 2022. Now 42.9 million people with federal student loans are preparing for repayments to begin again. The likelihood that a large segment of your workforce will be impacted is high.
A survey from Bankrate.com and BestColleges.com of 4,773 adults conducted last November finds that 69% of people with federal student loans will need to take some kind of action to afford monthly payments when they restart. In addition, three-quarters of borrowers believe at least one area of their finances will be impacted when payments resume. At the same time, many borrowers are considering different options to help make resuming loan payments more manageable.
The survey was conducted when repayments were set to resume on February 1, 2022. The extension to May 1 gives both employees and employers more time to prepare for the restart. To that end, the survey findings may illuminate employee attitudes and help employers better understand how they can continue to support student loan borrowers in their workforce.
How Employees Will Be Affected
Managing student debt is increasingly affecting employees’ financial wellness and the end of the federal payment pause will likely only amplify that situation. According to the survey, a majority of borrowers say they will need to sacrifice other areas of their financial well-being to make monthly payments again.
Emergency and retirement savings may take the biggest hit. A full 43% of respondents said that the return of federal student loan payments will negatively affect their ability to save for either goal. In addition, 39% of borrowers said they would have less to spend on discretionary purchases. Other anticipated impacts include difficulty paying bills and buying groceries (36%), the inability to pay down other debts (37%), having less money to invest (26%), and difficulty paying for current housing (25%).
Actions Employees Expect to Take
With the various extensions of the federal student loan payment pause, your employees have had time to think about what actions they can take to handle repayments in May.
To compensate for the return of federal loan payments, 32% percent of survey respondents said they would cut back on discretionary spending. Other actions they are contemplating include selling personal belongings (19%), finding cheaper housing (15%), and borrowing money (13%).
Employers may want to make a special note of these two data points: 26% of borrowers said they will need to seek a higher-paying job, while 25% percent are planning to take on a second job or side hustle to afford loan payments. If either becomes a reality this spring, it could have a negative effect on turnover and productivity at your organization.
Some Employees Have a Plan
Because they were anticipating federal student loan payback to start February 1 and now have until May 1, it’s likely that many of your employees are already considering different strategies to help manage or lower their student debt costs. The survey bears that out. Nearly a third of respondents said they were considering enrolling in an income-driven repayment plan, while 16% said they plan to apply for deferment, and 5% said they would refinance with a private lender.
However, nearly 1 in 5 respondents admitted they did not have any specific repayment plan in place. This suggests that the so-called “repayment cliff” could be highly stressful for many workers.
What Employers Can Do
Employers can help employees use the latest extension to further prepare for the restart of loan payments. For example, financial well-being programs that focus on budgeting and debt management can offer essential support to workers who will be making payments for the first time in over two years. Employer-provided financial counselors can also help employees determine if they are eligible for a government-sponsored income-based repayment plan , the Public Service Loan Forgiveness Program, economic hardship deferment programs, or refinancing with a private lender to consolidate loans and potentially improve terms.
In addition, your organization may want to take advantage of new government rules to begin offering or expanding student loan repayment benefits. For example, under the CARES Act, employers may now provide up to $5,250 tax-exempt annually for an employee’s student loan repayment through 2025. Before Covid-19 relief, an employer’s student loan contributions were subject to payroll taxes and taxable income to the employee.
Helping employees manage the return of student loan repayments can help build overall financial wellness within your workforce. SoFi at Work’s student loan education, refinancing, and repayment benefit platforms can help. In addition, we offer tools to support your employees through this important financial transition.
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