How HR and Benefits Leaders can Prepare for the Payment Cliff Ahead

June 28, 2021

Updated 11/28/22: Since this blog post was published, payments and interest on federally-held student loans are now set to resume 60 days after a court decision on President Biden’s forgiveness program. If no decision has been issued by June 30th, 2023, payments will resume 60 days later.

When the COVID-19 pandemic hit, the federal government responded with programs to aid borrowers. One of the most far-reaching options available was a federal student loan forbearance, which paused student loan payments and set interest rates to 0% for qualifying loans. Since March 2020, many borrowers with federal student loans have not had to make payments due to the CARES Act.

But come October, the forbearance program is set to expire and payments will be due again, which is uncharted territory for HR and benefits leaders managing the financial well-being of their employee populations.

While some experts think President Biden will extend the deadline, others are expecting broader relief from forgiveness. Either way, it’s a great time to plan ahead.

Four ways to scenario plan with student loans

Scenario 1: Payments Resume as Planned

As of June 2021, 99% of the 23 million borrowers in forbearance are utilizing the COVID-related forbearance program. When payments resume, these individuals will have to figure out if they can afford payments again.

How to support your employees: The federal government offers income-driven repayment (IDR) plans, which determine monthly payments based on the borrower’s income. Most borrowers who sign up for IDR plans can secure a lower monthly payment.

Using a digital solution like Summer helps your employees through every step of the process, including understanding the difference between deferment and forbearance. If a borrower has subsidized federal loans, interest will not accrue during deferment, but it will accrue during forbearance.

Borrowers may also consider switching to an income-driven repayment (IDR) plan which determines their monthly payment based on their income. Most borrowers will see lower payments on an IDR plan compared to the standard plan. Luckily, the right solution can have your employees covered by automating this process. Summer can help your employees understand which IDR plan is best for them as well as streamline enrollment.

Scenario 2: Payments are Pushed Back

If federal student loans are pushed back, you should inform your employees that they still have time before payments come due again. Encourage them to plan ahead, save money in an emergency fund, and track their spending.

How to support your employees: Digital tools can automatically inform select employees that they’re still able to make voluntary payments during the forbearance period, which is recommended if they want to take advantage of the 0% interest rate—meaning all of their payments go toward the principal balance.

Summer can also help employees consolidate loans that aren’t automatically eligible or guide borrowers who want to make extra payments.

Scenario 3: Biden Forgives $10,000 Worth of Student Loans

If Biden upholds his campaign promise of $10,000 of federal student loan forgiveness, then your employees could see a huge chunk of their student loan balance eliminated.

How to support your employees: For many borrowers, $10,000 in loan forgiveness could mean having their entire balance wiped out, but for others, it will only be a small portion. For reference, the average student loan balance in 2020 was $38,792.

For employees who have more than $10,000 in student loans, resources provided by tools like Summer can help educate them on their options and take action. If their loan balance is significantly reduced, they’ll see lower monthly payments. In this case, they could switch to a different, more aggressive repayment plan to pay off their loans faster.

They could also stay on the same repayment plan and use the difference to invest in your company’s 401(k) plan or save for a down payment.

Scenario 4: Congress Expands Loan Forgiveness/ IDR Options

Some experts think President Biden may expand loan forgiveness and income-driven repayment options. These new options may replace or be added to the current slew of IDR and loan forgiveness options.

How to support your employees: Before offering any recommendations to your employees, ask an expert. Summer can explain the benefits and drawbacks of these new plans. We can help your employees understand the fine print, like if a plan only applies to couples who file taxes jointly or what kinds of federal loans are eligible. A turnkey, digital solution can help your employees take action right away, months before payments resume.

Understand Employee Challenges

With the world opening back up again, return-to-work and the possibility of student loans coming due, your employees may be having a tough time. If your company provides any mental health benefits like free counseling sessions or extra personal days, make them aware of that during this time.

Borrowers With Private Loans Need Extra Help

The federal government will only create changes that affect borrowers with federal student loans, but some of your employees may have private student loans as well. Help them understand what options are available, like refinancing. Some private lenders also offer forbearance, but many charge an extra fee on top of interest.

You should also counsel your employees with private loans that these would not be included in the overall forgiveness scenario. This is a confusing point that often gets overlooked in the discussion around loan forgiveness.

Summer Can Help You Support Your Employees

Regardless of which way the wind blows in October, now is the time to take action. Schedule a brief call or demo with a Summer specialist to help you scenario plan and prepare for the payment cliff ahead.

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