Loan benefits

What Biden’s Student Loan Extension Means for Employers

The more than 40 million Americans with federal student loan debt have been granted another stay, as the Biden administration extended the moratorium on payments until May 2022.

Now borrowers have three more months to prepare for the financial burden of making those payments again. But is this reprieve really sufficient? For many, the answer is no, says Greg Poulin, CEO of student loan benefits provider Goodly.

“Over 90% of federal student loan borrowers have not made payments since the moratorium began,” said Greg Poulin, CEO of student loan provider Goodly. “With the average monthly student loan payment being $ 400, many borrowers will likely face significant challenges resuming their monthly student loan payments in May. “

Read more: McLaren Health Adds Goodly Student Loan to Help Solve Nursing Shortage

Student loan debt is a $ 1.7 trillion crisis in the United States, made up of both federal and private loans. of the Education Data Initiative, an organization that collects and organizes statistics about the American education system.

Although employers have taken steps to help employees gain more control over their financial lives – especially since the onset of the pandemic – only 17% of organizations are offering employees a student loan repayment benefit, according to Financial Wellbeing of the 2021 employer from the Employee Benefit Research Institute. survey.

“Employers have come to recognize that they are the direct beneficiaries of their workers’ education and that they can and should play a role in ensuring that their employees can repay their student loan debt,” said Poulin.

Read more: Biden Extends Pause on Student Loan Payments Due to Omicron Rise

The CEO recently contacted Employee Benefits News to share his thoughts on the extended moratorium on student loan repayments and what it means for employers and employees.

What factors played a role in Biden’s decision to extend the hiatus on student loan payments?
The Biden administration has extended the moratorium due to the growing number of COVID-19 cases caused by the omicron variant. According to the Ministry of Education, the 90-day extension will allow the administration to “assess the impacts of the omicron variant on student borrowers and give borrowers more time to plan for resumption of payments and reduce risk. default and payment default after restart. “

What does this mean for employers and employees?
For employees on federal student loans, this most recent extension means that accrued payments and interest will resume in May 2022. Employees can use this 90-day extension to prepare for the resumption of payments, including reviewing options to reduce their monthly payments by enrolling in income-based repayment plans and see if they are eligible for civil service loan cancellation programs.

Read more: Goodly Launches Wiki-Style Database of Employers Offering Student Loan Benefits

For employers, the next five months is the best possible time to start helping their workers pay off their student debt. Since interest on federal student loans has been suspended under the moratorium, any payments made before May 2022 will be applied directly to the loan principal, further speeding up repayment by reducing the outstanding loan balance more quickly.

While federal loan borrowers can take a break, private loan borrowers are still hooked. What can employers do to alleviate this burden?
Unfortunately, private student loan borrowers are not eligible for federal student loan forbearance and must continue to make their regular payments. Fortunately, Congress has made it easier than ever for employers to help pay off their workers’ student debt with the passage of the Consolidated Appropriations Act of 2021. The legislation includes a new tax provision that allows employers to remit Tax-free contributions of up to $ 5,250 per year for their employees ‘student debt, without these payments being included in employees’ taxable income, similar to a 401 (k) match.

How realistic is it to believe that the federal student loan debt will be canceled?
Widespread student loan cancellation isn’t going to happen any time soon and is unlikely to happen. While calls for student loan cancellations have garnered seemingly endless media coverage, the reality is that there is virtually no political support for it and it has turned out to be a hugely polarizing issue. While the White House recently said that President Biden will sign the student loan cancellation law passed by Congress, the reality is that Congress has taken no action on it.

Read more: How can employees repay their student loans and save for retirement?

How have you seen employers dealing with employee student loan debt during the pandemic? Did they do a good job?
Employers have done a great job helping their employees manage their student loan debt during the pandemic. Before the 2019 pandemic, about 8% of employers offered a student loan repayment benefit. That figure rose to 17% of employers in 2020, a 112% increase year over year.

At Goodly, we have also seen a significant increase in the average employer contribution during the pandemic. Before the pandemic, it was highly unusual for Goodly clients to contribute more than $ 100 per month to their workers’ student loans. Now that paying off student loans is a tax-free benefit, we frequently see businesses of all sizes contributing between $ 200 and $ 400 per employee per month.

Read more: How Student Debt Programs Shifted From a Big Benefit to a Critical Benefit

Is there still room for improvement?
The biggest area of ​​improvement is to have more businesses offering benefits for student loans. A recent study by Ramsey Solutions ranked student loan repayment assistance as the second highest benefit offering employers plan to implement in the next two years, behind just financial well-being.

Our Goodly clients often tell us that the benefits of student loan repayment help them hire faster and retain longer. Many employers note that student loans help build a diverse recruiting pool and help diversify their workforce. Reducing financial stress has been shown to improve employee productivity and reduce levels of absenteeism.

Source link