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Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

Nothing has been normal in the employee benefits landscape since the start of the pandemic. But events in 2021 have been particularly disruptive when it comes to college financing. Legislative changes, industry changes, and, importantly, the end of the student loan repayment pause may all have a dramatic effect on your workforce.

As most HR professionals know, student loan debt is quickly taking the lead when it comes to consumer debt. In 2020, nearly 45 million Americans owed a total of $1.7 trillion in student loan debt, making it second only to mortgage debt, according to April 2020 research from credit reporting agency Experian.

Despite those huge numbers, it’s easy to overlook the student debt burden that your own employees may be carrying. Many people assume that college debt primarily affects recent grads or low earners. That’s true, of course, but you may be surprised to learn that the people carrying the highest average federal education loan balance–$43,444–are borrowers ages 50 to 61. People aged 62 plus carry an average balance of $38,625. Meanwhile, young people closest to the age of typical college graduates (ages 19 to 24) have an average $15,160 balance.

The bulk of balances for older workers likely stem from PLUS loans they took out as parents or grandparents to pay for a child or grandchild’s education. But in many cases, your staffers in their 40s and 50s may still be paying down their own student debt after periods of forbearance or deferment, during which interest may have continued to accrue, increasing loan balances.

Student debt and the burdens it puts on employees is fast becoming one of the highest-priority talent management issues. In this article, we’ll explore four major changes taking place in the current student loan landscape and how those changes may affect your efforts to help employees repay college loans and achieve overall financial wellness.

1. The End of the Student Loan Repayment Pause

Come September 2022 many of your employees may find themselves falling off the so-called student debt cliff. After a more-than-two-year break, borrowers of federal student and parent loans will resume their college debt payments.
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, federal student loan payments were suspended and interest rates were set to 0%. The pause was set to expire September 2021, and has since been extended through Aug. 31, 2022.

Employers are looking to help employees with the payment cliff in various ways, including increasing student loan repayment benefits and providing access to the college finance experts and personal finance planners that can help employees budget and plan for repayment.

Debt of all kinds adds to financial stress, which in turn leads to decreased productivity on the job. In addition, student debt can significantly impede your organization’s overall financial wellness efforts. It’s not uncommon for employees struggling with student loan payments to forgo contributing to retirement or emergency savings. Financial counseling and other wellness efforts can help employees balance debt payments with long-term financial goals.

2. Tax-Free Student Loan Repayment Benefits

New government rules are extending the period during which employers can contribute $5,250 annually per employee for tuition reimbursement or student loan payments through 2025. Employers can write off the expense and employees have no tax liability for the benefit under Section 127 of the Internal Revenue Code. Before COVID-19 relief, only tuition reimbursement was allowed and employees had to treat a student loan repayment benefit as income.

The new tax advantages have prompted more employers to look into offering a college loan repayment benefit, according to Jennifer Nuckles, executive vice president and group business unit leader at SoFi.

3. Matching 401(k) Contributions Tied to Student Loan Repayments

Under what’s called the Abbott rule, the IRS opened the door to employers who wished to offer matching 401(k) contributions to employees who pay down qualified student debt. With this benefit, employers continue to pay matching funds to an employee’s 401(k) as long as the staffer makes a certain amount of student loan repayments even if they can’t meet the standard required for 401(k) contributions.

While some employers have embraced this benefit, others have been wary of implementing something based only on a specific IRS ruling.

But that may change soon. The Securing a Strong Retirement Act (SSRA), often called ‘SECURE 2.0’, is expected to be approved by the House and sent to the Senate sometime in 2021. Among other things, the act would fully authorize 401(k) matching contributions as part of a student loan repayment benefit.

If Congress approves ‘SECURE 2.0’, more employers may implement these matches and, in turn, help employees engage in retirement savings while paying down debt, adding to overall financial wellness.

4. Student Loan Industry Changes

With the repayment pause coming to an end, many employers are reminding workers to contact their loan servicers to get an update on the status of their loan and payment restart due dates and to make any necessary changes to their address or contact information.

But some employees may find they are among the nearly 10 million borrowers whose loan servicers have left the business. FedLoan Servicing and Granite State Management & Resources are two major firms that are not renewing contracts with the Department of Education. As a result, they will be transferring federal student loans to other servicers. The Federal Student Aid office says it is watching the transition to make sure borrowers are not affected by the changes.

Nevertheless, employers may want to suggest employees also keep a careful eye out for an email or letter from the Federal Student Aid office notifying them of a loan transfer and the name and contact information of their new servicer. They’ll also receive instructions on how to best view loan information such as balances, loan types, and interest rates.

As all employees review their loans in anticipation of repayments starting again, it’s a good time for employers to provide clear information and tips on ways to handle the end of the pause.

For employees struggling financially, alternatives such as deferment or one of the government income-driven repayment programs may be explored.

The Takeaway

When it comes to student loan benefits, SoFi at Work can help you and your team deftly manage 2021’s disruptors. SoFi at Work Student Loan Employer Repayment Program and refinancing program can help support your employee benefits programs as you help employees achieve their total financial wellness goals.

Photo credit: iStock/fizkes

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Toast IPO Could Value It at $16 Billion

Toast, a startup that makes restaurant management software, is gearing up to raise $714.4 million in its upcoming initial public offering. The startup, which is selling 21.7 million shares priced at $30 to $33 per share, is expected to have a valuation of $16 billion.

The IPO comes as business for Toast has been booming ever since the pandemic. With restaurants shut down, Toast shifted its focus to helping restaurants manage delivery and accept contactless payments, which boosted its sales. In February the startup had a valuation of around $5 billion, counting TPG, Tiger Global Management, and American Express Ventures among its backers.

Toast Benefited During the Pandemic

Toast is among the startups to benefit from demand for online ordering, curbside pickup, and delivery. The company has been around for ten years and when it goes public will list on the New York Stock Exchange under the ticker “TOST.” Revenue at the startup is made up of recurring software-as-a-service income and payments revenue.

In 2020 Toast grew 24% but in the first half of this year growth has accelerated with sales up 105%. That implies Toast’s shift to focus on delivery and contactless payments is paying off. With business booming and sales growing, it makes sense why Toast is choosing now to go public.

IPO Market Red Hot in 2021

Toast is joining a growing list of startups which are gearing up to tap the public markets this year. Other big name software-as-a-service startups launching IPOs this year include Freshworks, Thoughtworks, and ForgeRock. All of the companies are sporting lofty valuations as they gear up to debut in a red-hot IPO market. So far in the first six months of this year 213 companies have gone public, raising a total of $70 billion. There are also about 87 companies looking to raise a combined $20 billion before the year’s end.

Toast is going public amid surging demand for IPOs and strong sales growth. It will be interesting to see if investors reward this startup once it makes its public debut.

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