Student loan repayment benefits are taking center stage in lieu of the latest forbearance extension. Student loan borrowers face a deadline of August 31, 2022 to restart their loan payments and many say they just aren’t up to the task.
With $1.5 trillion in student loan debt and 40% of borrowers saying they aren’t confident they can afford those payments, there could be some serious blowback for employers who need to manage stressed-out workers.
Since the average borrower is saddled with nearly $41,000 (2021) in student loan debt, companies are sponsoring an innovative program–Student Loan Repayment–to alleviate worker stress, promote financial wellness and gain an edge in recruiting talented workers.
An economy ravaged by the pandemic forced Congress to pass special legislation to deal with the financial crisis. The CARES Act provided much-needed financial relief by suspending student loan payments, a process called forbearance. While borrowers had the option to make voluntary payments, most did not. Last minute government action did buy a 3-month reprieve, but that ends August 31, 2022.
Student loan repayment urgently needed
The restart of student loan payments comes at an inopportune time as worker paychecks are squeezed by up to 7.9% inflation rate. Young workers already have a lower percentage of home ownership, contribute paltry amounts to retirement plans and have almost forgotten what it’s like to have any savings.
Stress levels coupled with emotional crises are smothering workers. 45 million Americans carry student loan debt with an average balance of over $40,000, a financial burden which can influence performance at work and future planning decisions. However, there is an off-ramp to this crisis.
Student Loan Repayment Program Provides up to $5,250 ER money—tax free
Following the 2020 CARES and CAA COVID relief bills, employers can now help employees with their student loan debt on a tax-free basis. Benefit plans are designed to pay the employee directly or to the employee’s student loan financial institution. Companies can pay up to $5,250 yearly per employee with student loan debt on a pre-tax basis.
Several factors are driving employers to offer that money as an incentive. They seek to attract new workers, keep skilled employees, and enhance financial well-being as a stress reliever. It appears to be working. Some 86% of employees say they’d commit to a company for 5 years if that company sponsored a student loan repayment program. One employer saw a 50% reduction in voluntary turnover of those with student debt who participated in the student loan repayment program versus eligible, nonparticipating employees. Employers are pleased they have another piece of ammunition to battle The Great Resignation, a phenomenon distinguished by a vanishing labor market.
Download our white paper The Business Case for Student Loan Repayment and get a detailed breakout of why this benefit might be the right fit your company and why businesses believe now is the time to make the investment.