Student debt may be a growing threat to your employees’ financial wellbeing. In 2020, nearly 45 million Americans collectively owed a total of $1.7 trillion in student loan debt, according to research that credit reporting agency Experian released in April 2021. That’s more than the overall amount of outstanding credit card debt or auto loan debt. In fact, it’s second only to mortgage debt.
Your employees who are burdened with student debt may find it harder to budget successfully or put money away for emergency savings and retirement. Of 58,733 student loan borrowers polled in December 2020, 52% rated their financial wellbeing as poor or very poor since the pandemic began, compared to 21% who chose the same ratings before the pandemic. The poll was conducted by Student Debt Crisis, a student debt advocacy nonprofit, and Savi.
During the pandemic, the government suspended student loan payments through September 2021. So come October, employers may need to brace for the jolt employees will feel when repayment begins again.
But it’s not just former students feeling the pinch. Parents saddled with parent loans or helping their kids pay off student loans may also be under stress.
All of this has put HR professionals in the position of becoming college finance experts as they try to help their workforce manage this growing financial burden and achieve better financial wellbeing overall.
Before the pandemic, an increasing number of employers were implementing student debt repayment programs and other benefits to help with college financing. That number is expected to continue to rise post-pandemic now that the government has made it more attractive to offer student loan repayment benefits.
In addition, employers may discover that a suite of benefits designed to create a holistic approach to college financing may help employees make the most cost-effective college savings and paying decisions.
Here are four kinds of programs that can help lessen student debt stress among your employees and integrate college financing into your financial wellness program.
1. Student Loan Repayment Programs
New government rules extend the CARES Act provision allowing employers to provide $5,250 tax-exempt annually for an employee’s student loan repayment through 2025. Employees will also have no tax liability for the contributions. The tax advantages have prompted more employers to look into offering a loan repayment benefit, Jennifer Nuckles, executive vice president and group business unit leader at loan refinancing firm SoFi recently said in an article on the Society for Human Resource Management’s website.
2. 529 Contribution Payroll Deductions
For employees looking to pay for their children’s college costs or continue their own education, saving for tuition can be the best defense against student debt. That’s why a growing number of employers offer payroll deductions programs that allow employees to save in state-sponsored 529 college savings plans.
In 529 plans, earnings accumulate tax-free. Withdrawals are tax-free when used to pay for qualified higher education In addition, beneficiaries of 529s usually do not have to count 529 earnings as income. Many states also offer tax breaks on 529 contributions.
In many cases, employers offer matching contributions to employee 529 accounts. And, because employees may invest in any of the 49 state plans available, some employers offer college finance counseling to help with choosing a 529.
3. Education and Information about College Financing
Employers can offer expert seminars and one-on-one sessions with college financing experts to parents of high school age children on key strategies for choosing colleges, applying for financial aid, and, importantly, evaluating college acceptances and financial aid offers . Here are some key concerns employers can help with:
Understanding the Difference Between Merit Aid and Need-Based Aid
Parents are often confused about these two types of aid, especially when negotiating competing offers from schools.
Need-based aid is the package of federal aid and loans that schools put together based on a family’s ability to pay.
Merit aid is based on a student’s academic and other achievements and is not based on the ability to pay. Unlike need-based aid, merit aid is typically awarded for all four academic years.
Depending on their circumstances, employees may find themselves negotiating both types of financial aid offers from various schools. Certain strategies may work better for each type of aid. Parents who understand the process for both may have better results.
Understanding Subsidized and Unsubsidized Student Loans
There are two types of direct federal loans in the student’s name with no cosigner necessary. These are subsidized and unsubsidized student loans.
With subsidized direct federal loans, the government pays the interest on the loans while your student is in college. That factor makes these, in almost all cases, the best type of student loan available.
With unsubsidized loans interest starts accruing at the time of dispersal.
Most years, rates for both these types of loans can be more favorable than the rates for private student loans.
But there are limits. Undergraduate students may only borrow a maximum of $12,500 for both types of federal loans, with a lifetime maximum of $57,000. Interest rates are reset each year, usually in June.
Understanding PLUS Loans
PLUS loans are federal loans available in the parent’s name. There are no limits and credit scores are not considered. However, interest rates on PLUS loans are significantly higher than they are for student loans. You may find it makes sense to offer education and tools to help parents compare federal PUS loans and private loans.
Understanding Private Student Loans
Several types of private student loans are available. The loans are in the student’s name but usually require a cosigner. Rates, repayment terms, and total borrowing amounts vary widely among lenders so, again, employees may need help researching and comparing options.
4. Student Loan Discounts
Many employers who offer college financing benefits may want to consider partnering with a lender or group of lenders willing to offer the workforce a discount on private student and parent loan rates as well as access to educational programs to help employees navigate the college borrowing process.
There is a wide variety of college financing benefits and education efforts that employers can use to help relieve the stress of college financing and student loan debt among their employees. SoFi at Work can help with student loan repayment platforms, extensive education efforts, a parent hotline, and a lending suite of student, graduate student, MBA and parent loans.
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