How 2021 Disrupted the Student Loan Employee Benefit Landscape
Editors Note: Since the writing of this article, the federal Student Loan Debt Relief program has been blocked and the Department of Justice has filed an appeal with the Supreme Court. While the case is being reviewed, the Biden administration is extending 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.
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.
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.
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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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