How to Help Employees Prepare for the Resumption of Student Loan Payments
Editor's Note: Since the writing of this article, the federal student loan payment pause has been extended into 2023 as the Supreme Court decides whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. The U.S. Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.
Come September 2022, many of your employees may be facing yet another financial challenge. After a 23-month break, people who took out federal student and parent loans will resume their college debt payments.
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, federal college loan payments were suspended and interest rates were set to 0%. This pause was set to expire September 2021, but in early August, the government announced it would extend the loan relief through January 2022. On December 22, the Biden administration extended the pause on federal student loan repayment through May 1, 2022. And in early April, the pause was extended through Aug. 31, 2022.
Despite the extension, many of your employees may not be able to easily integrate payments into budgets already stressed by the pandemic and other factors. Almost 43 million people owe some type of federal student loan debt, for a total of $1.59 trillion. 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.
HR leaders can help. Many employers were already reevaluating and enhancing student debt support programs in anticipation of the original September deadline. Now after three more extensions, both employees and employers have more time to prepare. Consider these four action points to help your employees resume their college debt repayments as smoothly as possible.
1. Consider Student Loan Repayment Benefits
The CARES Act went beyond just the loan pause. New government rules also make it easier for employers to offer student loan repayment benefits. Under the new rules, employers may provide up to $5,250 tax-exempt annually for an employee’s student loan repayment through 2025, encouraging many firms to begin offering this benefit.
If your company is looking to help employees plan for future college costs, you might consider a 529 payroll deduction program. This allows employees to save in state-sponsored 529 college savings plans.
2. Help Employees Understand Their Options
One of your main goals likely is 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 personal finance or student debt repayment advisers can help those returning from the payment pause as well as those who are carrying private college loans.
For workers who find they can’t handle the return of college loan payments, HR leaders may need to be ready to provide clear information about alternatives, such as filing for forbearance or one of the government income-driven repayment programs.
Forbearance allows a qualified borrower to suspend student debt payments for a period of time. However, interest continues to accrue during the suspension, often increasing the overall amount owed, sometimes significantly. The income-driven plans 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.
Refinancing may also be an option for some employees, especially in this current low interest rate environment.
Employees who plan to stick with their current loan repayment plans should be encouraged to contact their loan servicers to get an update on the status of their loans and payment restart due dates. This is especially important for employees who have moved or changed their mailing address during the pandemic.
3. Encourage Payments During the Pause
Employees who can afford it may want to consider making payments during the pause extension. Because interest is set at 0% during the relief period, the entire payment will go toward paying off principal, thus lowering the loan balance even more.
4. Find Ways to Help Balance Student Debt With Employees’ Financial Wellness
Well before the pandemic, many employees struggled to pay college loans and save for other important financial goals. Often, 401(k) contributions (and any match) were sacrificed in the face of student and parent loan payments.The same thing happened with emergency savings.
The student loan payment pause may give your employees time to examine their overall budget and financial goals now and for the future. Offering the counseling, alternatives and guidance outlined above with an eye toward overall financial wellness can help remind employees of the importance of saving for the future as well as taking care of current debt.
One possible action: employees may want to put the money they would have spent on student loan payments during the extension toward retirement or emergency savings.
HR professionals may be able to provide support for employees planning for the return of their college loan payments without sacrificing their overall financial wellness. SoFi at Work can help design and implement student debt assistance programs for any size organization on any budget.
SoFi Checking and Savings SoFi Student Loan Refinance CLICK HERE for more information. 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.
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
SoFi Bank Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time. Emergency Vaults are part of SoFi Checking and Savings.
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.
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.
Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For information on licenses, see NMLS Consumer Access (www.nmlsconsumeraccess.org ). The Student Debt Navigator Tool and 529 Savings and Selection Tool are provided by SoFi Wealth LLC, an SEC-registered investment adviser. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal housing lender.
SoFi Student Loan Refinance
CLICK HERE for more information.
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.