Student loan debt is a crisis that weighs heavily on the financial wellness and future prosperity of millions of Americans from all walks of life. Already, popular conversations are bubbling up to move federal student loan administration over to the Small Business Administration (SBA). To understand what these changes could mean, OverTraders.com consulted many financial experts and educators. This article will explore the current state of student loan debt, recent legislative changes, and strategies for employers and HR professionals to support employees in managing their student loans.
The Effects of Student Loan Debt
The harms of student loan debt extend beyond borrowers, affecting their ability to make major life decisions and undermining broader economic security. Understanding the breadth and impact of this debt is key to creating solutions that work.
Overview of Current Debt Statistics
The burden of precarious student loan debt is acute, with many borrowers sinking in repayment. As many as 71% of borrowers don’t feel confident in their repayment plan, in accordance with recent surveys. Make no mistake—a shocking 61% of borrowers we surveyed have low or no confidence in their repayment plans. Conversely, just 13% say they are very confident in their approach. This brings to light the acute need for more education and support for borrowers. On the flip side, the typical American saving for college expects the total cost to exceed $77,000. They’ve committed to paying it down before they turn 45. This long-term financial commitment can impose a significant burden on them, detracting from their ability to achieve other important financial goals.
Consequences for Employees and Employers
The growing burden of student loan debt has real and serious effects not only on employees but for employers. It can be demoralizing to graduate with so much debt. It inevitably causes people to defer essential financial milestones such as purchasing a home, building a retirement nest egg, or starting a family. This can push back key milestones in their lives and affect their financial security in the long run. In addition, employee financial stress due to student loans is affecting employers directly. Collectively, it leads to lost productivity, absenteeism, and turnover. Providing student loan repayment benefits helps employers recruit and retain talent, boost employee morale, and strengthen the organization’s reputational standing.
Recent Legislative Changes Affecting Student Loans
Recent legislative changes have focused on relief and making repayment easy for student loan borrowers. Knowing these changes will be key for borrowers and employers alike who want to help their employees succeed.
Key Provisions of the CARES Act
The CARES Act, enacted in response to the COVID-19 pandemic, provided temporary relief to student loan borrowers by suspending loan payments, stopping interest accrual, and halting collections on defaulted loans. This suspension was a critical form of financial relief to millions of Americans at a time when it was most needed. Without further relief, the CARES Act relief measures have all but ended. What they did do in unambiguous terms was illustrate how government intervention can reduce the burden of student loan debt.
Highlights of the Secure 2.0 Act
The Secure 2.0 Act gives employers new tools and incentives to help employees supercharge their retirement savings. They can implement them via employer matching contributions tied to employees’ student loan payments. This unique new feature allows employees to contribute to retirement savings at the same time they are paying off their student loans. This provides an enormous benefit for staff. No longer will they be forced to prioritize one financial goal over the other. By incentivizing student loan repayment through retirement contributions, the Secure 2.0 Act helps employees build a more secure financial future.
Strategies for Offering Student Loan Repayment Benefits
Employers are seeing an increased need to offer student loan repayment benefits in order to continue attracting and retaining highly-qualified talent. There are a few concrete steps that companies can take to help their employees pay off their student loan debt.
Educational Assistance Benefits (Section 127)
Section 127 of the Internal Revenue Code allows employers to provide up to $5,250 in tax-free educational assistance for their employees. They are worth up to $5,250 per year! You can apply this education benefit to your tuition, fees, books, and supplies. It works the same way on student loan repayment, too! By offering this benefit, employers can help employees reduce their student loan debt while improving their financial literacy and skills.
Matching Contributions for Student Loan Payments (Secure 2.0 Act)
As mentioned earlier, the Secure 2.0 Act allows employers to make matching contributions to employees' retirement accounts based on their student loan payments. This provision protects employees’ ability to gain retirement benefits. At the same time, it encourages them to pay down their student loan debt, providing an important repayment incentive. We’re excited to see how this innovative approach helps employees make progress on short-term and long-term financial priorities.
HR's Role in Supporting Employee Debt Management
Human Resources (HR) professionals play a crucial role in supporting employees' financial well-being, including helping them manage their student loan debt. Through sufficient resources and direction, HR greatly influences employees’ abilities to make informed decisions and become financially fit.
Best Practices for Informal Support
HR can also lend informal employee support through financial literacy workshops, webinars, and one-on-one counseling sessions. These resources can guide employees through figuring out what options are available to them for their student loans, how to budget and plan for repayment. Further, HR can work with financial institutions to provide discounted refinancing or consolidation rates on student loans.
Resources for Employees
Second, HR can begin and support employees through different resources to assist with their student loan debt. These resources include:
Employer-matched student loan repayment programs
Income-driven repayment plans
Forgiveness programs
Repayment assistance programs
Education assistance programs
Workers need to have a solid understanding of the eligibility criteria required for the SAVE repayment plan. This requires working a minimum of 30 hours or more per week for a qualifying employer, holding Direct Loans or consolidating other federal student loans into Direct Loans, repaying loans on an income-driven repayment plan, and making 120 qualifying payments. These tax-free forgiveness provisions are still fully applicable to borrowers who qualify under the PSLF (Public Service Loan Forgiveness) program. It’s important to remember this early on!
Even if the SAVE plan weren’t facing an almost insurmountable legal challenge, it’s already been blocked by two US appeals courts. Borrowers are required to recertify their income and family size on an annual basis to remain enrolled in the plan.
Key Takeaways for HR Professionals
For HR practitioners, it’s especially important to understand the nuances of student loan debt and how it affects your employees. By implementing strategies such as educational assistance benefits, matching contributions for student loan payments, and providing access to financial resources, HR can play a significant role in supporting employees' financial well-being. Furthermore, staying informed about legislative changes and emerging trends in student loan management will enable HR to provide the most effective support to their employees. The SAVE plan is specifically set up to lower monthly payments for borrowers with lower incomes. It makes all aspects of the loan forgiveness process easier too, adds Brittany Brinckerhoff, CFP, CSLP.
The world of student loan management is incredibly dynamic right now. At OverTraders.com, we’re going to continue providing in-depth analysis and informative resources to help individuals and employers understand and work through these complexities. The possible transfer of the management of the student loan program to the SBA requires our vigilance. We need to keep assessing this change to ensure we get the optimal results for borrowers and the economy overall.
