At the end of June, the Supreme Court ruled against President Biden’s student loan forgiveness plan to eliminate $400 billions of debt. Now, not only will 43 million borrowers not receive relief, these borrowers will also have to make federal student loan payments in October for the first time in 3.5 years.
Given that nearly one in every five Americans has federal student loan debt, the end of the payment freeze will be felt far and wide – including within your employee population. Many borrowers’ finances have changed for the worse since March 2020, so they’ll need support to successfully tackle loan payments alongside their other responsibilities. If you’ve been delaying the adoption of a student loan assistance benefit or you’ve yet to seriously consider it all, here are six reasons why you need to implement it as soon as possible to strengthen your workforce.
1. Workers are already under a lot of financial stress – and loans won’t help.
Borrowers’ non-student loan and non-mortgage debt has risen since the onset of the pandemic. Per the Consumer Financial Protection Bureau, half of borrowers’ monthly payments on that debt has increased by 10% since the onset of the pandemic and one in 13 borrowers is behind in payments. This includes credit card debt, which reached a record high of nearly one trillion dollars in Q1. And inflation, while on the decline, still remains high.
On top of this, borrowers will need to find an additional $300 to $400, on average, in their monthly budget when loan payments resume. (Some will owe much more than that.) This will be particularly challenging: 26% of respondents in a Credit Karma survey are using money that used to go towards student loans for bills and other necessities.
To further complicate matters, as the Jain Family Institute finds, the borrowers who benefitted most from the payment pause are those who will likely never pay off their debt; that’s because the interest on their loans is accumulating at a faster rate than what they’re able to pay. Therefore, countless borrowers are grappling with the immense stress of unaffordable student debt hanging over their heads for the foreseeable future.
2. Financial stress at home impacts performance at work.
According to Morgan Stanley’s latest State of the Workplace study, 71% of respondents say that financial stress negatively impacts their work. Notably, the share of workers with this sentiment increased almost 10% from the previous year.
What does this negative impact look like? Financially stressed workers are more likely to be distracted, losing anywhere from three hours to a day at work every week to those stressors. They’re also twice as likely to look for a new job to find an employer who provides more support for their financial wellbeing. This can lead to higher turnover, which is costly, hurts productivity, and can hinder growth.
3. Workers want financial wellness benefits from their employers.
Survey after survey makes it clear what employers can do to alleviate workers’ financial stress and improve productivity: offer financial wellness benefits. Given the fast-approaching end to the payment pause, adding student loan assistance to your benefits is a timely and cost-effective way to help attract and retain high-performing employees.
The proof is in the numbers: per a 2022 Betterment survey, 51% of surveyed employees feel that their employer should provide support in paying off student debt. Close to two-thirds of respondents believe student debt has hindered their ability to save for retirement, so employer support via student loan assistance could finally enable these borrowers to tackle two major financial goals.
4. Employers can help workers enroll in repayment plans and/or obtain forgiveness.
Making loan payments affordable should be a priority for employers as borrowers have to start making payments in October. With a student loan assistance benefit, employers can help employees confidently navigate income-driven repayment (IDR) and Public Service Loan Forgiveness (PSLF).
This will be particularly crucial later this summer when borrowers can finally enroll in the Saving on a Valuable Education (SAVE) plan. SAVE is a new IDR plan that will cut monthly payments from 10% of discretionary income to 5%, raise how much money is considered non-discretionary (so some payments will fall to $0), not charge unpaid interest, and forgive balances after 10 years of repayment for borrowers who originally owed $12,000 or less. Up to 73% of borrowers are expected to receive lower monthly payments under SAVE. The sooner you start working with a partner that offers a digital student loan solution, the easier it will be to provide your employees with access to the tools, resources, and expert support they need to enroll before October.
In terms of PSLF, a partner can help your employees get credit for qualifying payments, pushback against incorrect information from loan servicers (which is very common), and receive forgiveness. PSLF is notoriously complicated, so working with a partner that has a track record of obtaining forgiveness is key here. This way, your employees can say goodbye to stress and hello to peace of mind.
5. Employers can contribute to loan payments or provide tuition reimbursement, tax-free.
The CARES Act did more than pause federal student loan payments; it also permitted employers to pay up to $5,250 tax-free, annually, towards employees’ student loans or tuition reimbursement. However, this tax-advantaged provision expires in 2025, so employers could run out of time to take full advantage of it this calendar year if they don’t move quickly.
Working with a partner is the fastest way to get an end-to-end digital solution that seamlessly integrates into your organization’s workflows without adding more to your HR team’s plate.
6. Employers can use Secure 2.0 to help workers save for retirement while they pay off their loans.
Thanks to Secure 2.0, a federal bill passed in 2022, employers will soon be able to match employees’ qualifying student loan payments with contributions to their retirement plans. This is game-changing as workers no longer need to choose between saving for retirement planning and paying off their loans. For plan sponsors, this can drive up participation: even though 401(k) matching is a highly sought benefit amongst workers, Vanguard found that 34% of employees weren’t taking advantage of the match.
Although the student loan matching provision of Secure 2.0 doesn’t go into effect until January 2024, you can start working with a partner now to ensure everything is ready in time. Additionally, once you decide that you will offer this benefit, you can communicate to your employee population that they’ll be able to take advantage of this benefit in the new year – news that will most certainly be welcome.
With student loan assistance, you can offer stability to your employees during a stressful time.
The end of the student loan payment freeze will be disruptive to millions of borrowers across the country. Some of these borrowers work at your organization and are already stressed by the prospect of managing loan payments on top of other financial obligations. Set your employees up for success before payments resume in October, by adding student loan assistance to your benefits today. A less financially stressed employee is more productive, more engaged, and more likely to stay.
Schedule an intro call or demo with a Summer solution specialist to learn how our digital solution can help your employees’ financial wellbeing before payments resume. Turnkey contracting and implementation can have our proven student loan benefit up and running in under a week.