Employer Student Loan Aid Tackles College Debt Crisis
Federal student loan repayments — and interest on that debt — have been suspended during the pandemic, thanks to federal COVID-19 relief legislation. However, from October 2021, some 44 million borrowers who owe around $1.7 trillion will have to start repaying debt that has grown exponentially over the past decade and a half.
Many are ill-prepared to do so. This massive debt is a source of consternation and concern not only for those who owe money, but also for their employers.
Employers recognize the emotional toll employee debt can take. This stress affects their mental health and work performance, as well as organizational productivity.
For many students, the pandemic — and the shift to remote learning — hasn’t reduced tuition. Credit reporting firm Experian notes that in 2020, borrowers’ student loan balances increased by 9% and total student debt increased by 12%.
“Student loan repayments will resume on October 1, which will be a shockwave for millions of borrowers,” said Will Sealy, co-founder and CEO of Summer, a company that helps borrowers track their student loans. and enroll in repayment plans. “When you add the complexity of the pandemic, employees will face immense stress and high levels of delinquencies, resulting in a financially at-risk workforce.”
Employers have many reasons to consider ways to help employees reduce this burden and the emerging opportunities for employers to do so.
Student Debt Relief Opportunities
A fall 2020 survey from AIG Retirement Services, collecting responses from 664 public sector employees who repay federal student loans, found that a significant number of respondents would otherwise use the money spent on monthly loan payments. students for other financial responsibilities, such as contributing to retirement savings and investments (47%) or adding to their emergency savings fund (43%).
“Student loan debt has increasingly become a major problem,” said Rob Scheinerman, CEO of AIG Retirement Services. “This was a big topic during the last election cycle and continues to be a top concern in Washington. There is a growing belief that student loan debt represents a financial crisis in much the same way as concerns about the our nation’s retirement savings.”
The government has taken steps to address this burgeoning problem, he noted:
The CARES Act (Coronavirus Aid, Relief and Economic Security), which became law in March 2020, suspended federal student loan payments until September 30, 2021, and temporarily set the federal student loan interest rate at 0%. It also allowed employers to provide up to $5,250 in tax-exempt student loan repayment contributions through December 31, 2020. Prior to the CARES Act, employer-provided tuition assistance up to at $5,250 was tax-exempt under Section 127 of the tax code, but the loan-repayment dues were taxable.
Consolidated Appropriation Act, 2021 (CAA), passed in late 2020, extended the student loan provisions of the CARES Act to allow employers to make tax-exempt loan repayment contributions of up to $5,250 through 2025. Employers and Loan holders are strongly advocating that Congress make tax-free employer contributions for student loan repayment a permanent benefit.
The Society for Human Resource Management (SHRM) “has long advocated for the expansion of employer-provided educational assistance to include student loan repayment as a tax-free benefit and was pleased to see the benefit extended through 2025,” said Chatrane Birbal, Vice President of Public Policy at SHRM.
“This benefit will provide some relief to employees who are currently paying off student loan debt and will also give employers more flexibility in designing benefits packages for recruitment and retention purposes,” Birbal said.
More than half of employers today offering a student loan benefit also offer a tuition repayment benefit, said Charounson (Char) Saintilus, founder and CEO of Stubenefits, which provides loan repayment solutions for employers. and to employees.
Notably, he said, “in a tuition reimbursement program, a lump sum” – typically up to $5,250 – “is paid to the employee, often annually. Loan benefit contributions are paid in installments, a small, low-risk investment for the employer in the event of an employee’s sudden departure.
He added: “Some employers are considering whether they should replace their tuition reimbursement program with a student loan benefit. These two Section 127 plans serve different purposes, and we are not advising employers to do it.”
Focus on financial well-being
“The 15-month pause on student loan repayments and the fact that millions of people will suddenly have to start paying again in October is unprecedented,” said Aaron Smith, co-founder of student loan repayment technology company Savi. student loans. “Borrowers,” he added, “are confused and worried about the end of the suspension of payments. Human resources managers…can help educate employees and ensure they are taking full advantage of programs available when payments resume”.
Savi and Student Debt Crisis, a nonprofit student debt advocacy organization, surveyed 58,733 student borrowers last December about their plight during the pandemic. Among the results:
- 52% of borrowers rated their financial well-being as bad or very bad since the start of the COVID-19 pandemic in March 2020. Only 21% rated their financial well-being as bad or very bad before the pandemic.
- Borrowers of color were disproportionately likely to report missing a rent or mortgage payment, experiencing food insecurity and homelessness, or not being able to afford health care and medicine during the pandemic in due to student loan repayments.
The tax advantages offered by the CARES Act, extended by the CAA, have prompted more employers to consider offering a loan repayment benefit, said Jennifer Nuckles, executive vice president and group business unit leader. of loan refinancing company SoFi.
Sealy said employers’ interest is piqued not just because of the recently enacted tax relief for employer loan contributions, but for a larger reason: employee welfare. “We hear a lot of employers telling us [that] they are thinking about financial well-being now, more than ever, because of the horror stories that arise from the pandemic,” he said. – all took a toll.
Scheinerman also sees employers’ interest in promoting financial well-being as an important driver for more employers to consider student loan benefit offerings. Student loan debt, he pointed out, “is the second-largest type of debt in America – only lower than mortgage debt – and, for young employees just starting their careers, managing loan debt student is a major concern”.
[Related SHRM article:
Student Debt Debate Has Implications for Everyone]
TekSynap, a technology company that provides information management services to government agencies, is an example of a company that has chosen to offer student loan assistance to employees. Their reasoning, said Ruben Hormostay, a human resources specialist at the company, relates to both attracting and retaining top talent.
The company, through its plan with SoFi, will match employee payroll-based student loan repayments of up to $1,000 each year, or match employee contributions to a 529 college savings plan from same amount, as part of the company’s overall financial well-being. -be benefits program.
The loan repayment matching option, which the company began offering in September 2018, allows TekSynap to “ensure that the majority of employees reap the benefits of the company’s commitment to education and financial well-being for all employees, regardless of location.” their financial/educational journey,” Hormostay said.
Hormostay’s advice to other employers is “do it!”
“I would recommend all companies try to implement this if and when the budget allows,” he said.
More employees will take advantage of this benefit if they understand it and keep hearing about it.
“Continue communicating the benefit after an employee starts and allow enrollment year-round,” Hormostay advised. “Keeping the lines of communication open is key.”
He also stresses the importance of ensuring HR staff and management “are available and have the information they need to answer questions.”
“Small employers who are hesitant about the cost of implementing and maintaining a student loan are excited about the prospects of SECURE Act 2.0,” said Stubenefits’ Saintilus, referring to the bipartisan Securing a Strong Retirement Act. , which was passed unanimously by the House Ways and Means Committee on May 5.
The legislation, among other things, would allow an employer to make tax-exempt contributions to an employee’s 401(k) plan, 403(b) plan, or SIMPLE IRA, to match student loan payments deducted on the employee pay. This would allow “borrowers to save for retirement using tax-free employer contributions to their retirement account, while simultaneously paying down their debt,” Saintilus said.
“Some employers are waiting for SECURE Act 2.0 to pass and are considering taking advantage of this option in a student loan benefit program,” he noted.
Lin Grensing-Pophal is a freelance writer in Chippewa Falls, Wis. Stephen Miller, CEBS, contributed to this article.