How Leading Organizations Are Preparing Their Workforces for the Financial Cliff of Repayment
Editor’s note: This is story has been updated to reflect the latest extension of the federal student loan payment pause to May 1, 2022.
Major organizations are gearing up to help their employees with the challenge of what’s sometimes called the student loan repayment cliff. In May 2022, 40 million borrowers will be facing the return of monthly student loan bills after a 26-month pause. Knowing the importance of helping employees have a smooth transition back into repayment and maintain good financial posture, many employers want to make sure their workforces are ready.
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, payments for federal student loans owned by the Department of Education were suspended and interest rates for those loans were set to 0%. Although the pause was originally set to expire in September, 2021, the government announced an extension of the pause on student loan repayment, interest, and collections through May 1, 2022. Fortunately, a provision that was also introduced in the CARES Act (and that has also been extended via more recent legislation) sets employers up to ease this transition by letting them contribute $5,250 annually per employee on a tax-exempt basis toward tuition reimbursement or student loan payments through 2025. To maximize the value of this benefit, employees also benefit from zero tax liability on contributions made by their employer toward educational assistance programs (up to $5,250) under Section 127 of the Internal Revenue Code.
About 8% of large companies offered student loan repayment benefits before the pandemic and some believe many more have implemented or are considering the benefit in light of the tax status change.
More generally, helping with student debt, and specifically the coming payment cliff, is a vital part of the trend toward offering financial wellness programs that reach beyond retirement savings to build financial security in all areas of an employee’s life.
More and more organizations are taking a broad approach to financial wellness. A majority of employers (62%) feel extremely responsible for their employees’ financial wellness, compared to 13% in 2013, according to Bank of America’s 2020 survey of 808 employers that sponsor 401(k) plans. Among the top benefits listed were help with budgeting and debt management, both important resources for employees facing the student loan cliff.
Here’s a closer look at how a handful of large employers are situated to help their employees face the restart of student loan payments.
The healthcare company Abbott may have paved the way for a creative, effective way to help employees who are saddled with college debt continue their retirement savings. Like many companies, Abbott noticed that employees struggling to pay back loans can’t afford to contribute to 401(k) and other retirement savings. So, Abbott started its Freedom 2 Save program, which allows employees with student loans to divert the 2% minimum contribution they would need to contribute to their 401(k)s to receive Abbott’s 5% match to paying off student loans.
This benefit has led to the so-called Abbott rule. The IRS issued the company a private letter ruling allowing the unorthodox 401(k) match. Since then, a handful of companies have evaluated the practice. But many other employers may rush to adopt this benefit if, as expected, Congress passes The Securing a Strong Retirement Act (SSRA). Among other things, the Act would fully authorize 401(k) matching contributions as part of a student loan repayment benefit.
Abbott reports that employees who have signed up for their match benefit range in age from early 20s to 60s. The average amount of student loan debt is $38,000, with the highest amount being $300,000.
The health insurance giant began supporting employees with student debt back in 2016, making it an early adopter. Aetna matches student loan payments up to $2,000 with a lifetime maximum of $10,000. Aetna differs from many other employers offering this benefit in that the company includes part-time employees in the program, providing them with half the amount of payment relief that it gives to full-time employees.
The tech heavyweight joined the student loan repayment benefit bandwagon in the wake of the pandemic. Starting this year, the company will match up to $2,500 a year per full-time employee, adding to the company’s existing tuition reimbursement program.
Student loan support helps Google attract talent at a time when its legendary in-office perks carry less weight with its increasingly remote workforce. It also adds to the company’s diversity, equity, and inclusion efforts. John Casey, Google’s director of Global Benefits explained the relationship between the program and the company’s goals in a company blog post , “Though student loan debt is an issue globally, Americans in particular face an enormous student loan deficit—$1.5 trillion dollars, twice what it was a decade ago. This burden disproportionately affects women and communities of color: For example, on average Black college graduates have $25,000 more in student debt than white graduates four years after completing a bachelor’s degree.” Google also announced it expects to expand the program globally.
New York Life
Another company with one of the more established student loan payment benefits, New York Life pays up to $10,200 over five years for an eligible employee’s college debt. Importantly, the program also strongly encourages employees to use the student loan advice and online planning tools the company offers, including financial planning counseling, its student loan calculator, and information on how to qualify for a mortgage while carrying student debt and other education efforts.
Visual computing company NVIDIA may be one of the most generous employers offering student loan payment assistance, although only recent grads are eligible. Full- and part-time employees who have been at the company at least three months and have graduated within the past three years can receive up to $500 a month for a maximum total of $6,000 each year, with a lifetime maximum of $30,000. (If the required monthly payment on a student loan is less than $500 a month, NVIDIA makes the total payment.) In addition, NVIDIA offers student loan refinancing customized applications (through SoFi).
Accounting and professional services firm PwC is also one of the first companies to offer student loan repayment. The company pays $1,200 per year for up to six years. PwC offers the benefit to associates and senior associates. If an employee is promoted to management, access to the benefit ends. Back in 2019, the company reported that minority groups are more likely to sign up for student loan repayment, with 62% of black employees and 52% of Latino employees opting in, compared to 47% percent of white employees and 22% of Asian American employees.
Here at SoFi, we conducted a survey to learn more about the benefits employees want. We discovered that 90% of respondents would be more inclined to accept a position at a company that helps them pay off student loans. So, we joined the growing number of companies that offer student loan repayment to employees, offering $200 a month in loan reimbursement.
SoFi at Work can help you help your employees manage student debt with SoFi’s Employer Student Loan Repayment Program and Student Loan Refinancing. While refinancing federal student loans with a private lender excludes them from federal benefits and protections like income-driven repayment plans and loan forgiveness, some borrowers may opt to refinance depending on their personal financial situation and goals.
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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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