We’re entering a new chapter in student loan policy near the end of 2023, one that has far-reaching implications for employees and employers alike. The end of the yearslong student loan payment freeze spells financial uncertainty for millions of borrowers, threatening their financial wellbeing in an unprecedented way. At the same time, new programs will enable employers to better support their employees during a vulnerable time.
Our Chief Customer Officer Bridget Haile recently spoke with Tracy Tillery, Chair of the Education and Communication Committee at PSCA and former health system HR executive, on this topic in the PSCA “The New Era of Student Loan Assistance” webinar. Missed it? Don’t worry – here are four takeaways, including the steps your organization can take to implement student loan assistance benefits that meaningfully help the borrowers in your employee population.
1. Many borrowers, including those at your organization, will struggle once federal student loan payments resume.
This isn’t speculation, unfortunately. According to a recent Credit Karma survey, 56% of borrowers say they cannot afford to both pay their loans and cover necessities, such as rent, groceries, and bills. Further complicating matters is that at least 10 million borrowers will have to navigate making payments through a new loan servicer, adding yet another task to their plates.
2. SAVE and Secure 2.0 can be lifelines for your employees.
These new programs tackle different major stressors for borrowers:
- SAVE, an income-driven repayment (IDR) plan, offers eligible borrowers lower monthly payments than existing IDR plans, a cap on interest, and shorter forgiveness timelines for original balances under $12,000. The cap on interest is particularly notable because 60% of borrowers have failed to lower their loan balances due to interest; with SAVE, their balances can actually decrease.
- Secure 2.0 enables plan sponsors to make matching contributions to participants’ retirement plans by treating qualifying student loan payments as elective deferrals. It’s an affordable, tax-advantaged benefit that can significantly increase plan participation –a gamechanger for the 42% of borrowers who’ve said they will have to reduce or cut saving for retirement in order to pay their loans.
Still, there are a few details to keep in mind about both programs. To start, lower payments under SAVE won’t go into effect until 2024, although borrowers enrolled in the plan are already benefiting from capped interest. With Secure 2.0, plan sponsors need to figure out their approach to student loan verification and the frequency (monthly, quarterly, or annually) for making the matching contribution. Working with a partner who offers a digital solution can streamline the Secure 2.0 implementation process and save your HR team from more work.
Additionally, not all borrowers with federal student loans will qualify for SAVE: Parent PLUS loans are excluded. Secure 2.0, on the other hand, benefits borrowers with federal and private loans alike.
3. Student loan assistance benefits are an invaluable DEIB offering.
The truth of student debt is that it exacerbates existing economic inequality, and certain portions of your workforce may be disproportionately affected by student loans.
On average, Black college graduates owe $25,000 more in student loans than white graduates. Research also shows that the median Black borrower still owes 95% of their original balance after starting college whereas the median white borrower has paid off 94% of their balance. Student debt also tends to impact women more than it does men: women hold almost two-thirds of all student debt. And the fastest group of borrowers is people over 50 who are taking out loans for their childrens’ education.
The burden of these loans may cause these borrowers to struggle and suffer financially. In order to help them, take the time to understand the profile of the borrowers at your organization and which student loan assistance benefits can be best tailored to their needs. Doing so will keep your employees happy, engaged, and, ultimately, more productive at work. Start the conversation as soon as possible because this problem will only grow in scale and severity in the months ahead.
4. Benefits aren’t one size fits all – you know your employees best, so choose what makes the most sense for them.
As an employer you have options when it comes to determine which benefit(s) you want to offer to your employers. Student loan assistance benefits can be divided into three main categories:
- Assistance helps borrowers navigate payment plans, refinancing, federal and/or state programs, as well as defaulting.
- Contribution covers direct payments to loans.
- Secure 2.0 involves making contributions to existing retirement plans that match student loan payments.
To determine which category makes the most sense for your population, you’ll need to think through key questions about HR needs, employee needs, and how you’ll measure success. Budget is the first consideration. Assistance doesn’t require payments on employees’ behalf, so it’s a particularly great option for government and non-profit employers who can help all full-time employees enroll in Public Service Loan Forgiveness (PSLF). Employers who do want and can afford to put money towards employees loans should look into contribution and Secure 2.0 benefits.
Next, you’ll need to determine the profile of the employees at your organization. How many have student debt? What’s the average monthly payment? After better understanding your employees, you can identify where it makes the most sense to offer assistance.
Lastly, identify the metrics you want to track to assess the impact of the benefit(s). With Secure 2.0, you can easily track participation and retirement savings. For all benefits, you can look at retention; one Summer client recently found that employees who used the benefits offered through Summer were retained at a 20% higher rate than those who didn’t.
To learn how Summer’s digital student loan assistance solution can help you retain talent and meet your DEIB goals, schedule a demo call with one of our product specialists.