Student loan forgiveness sounds too good to be true. But what does student loan forgiveness mean for employers? This could be good news for employer benefit programs and financial well-being. Either way, it will likely prompt employers to consider making changes to their benefits programs. This should be done with the guidance of a benefits counselor or consultant. Employees who find themselves free of student debt can divert their money to other benefits, such as 401(k) plans.
In August, the President announced extensive student loan debt relief. Up to $20,000 of debt will be forgiven for Pell Grant recipients and $10,000 for non-Pell grantees, for people earning less than $125,000 per year ($250,000 for married couples) . Additionally, the pause on student loan debt repayments, which was put in place at the start of the pandemic, will be extended once again, until December 31. The Department of Education has also proposed new income-based repayment plans for undergraduate loans that are intended to reduce student borrowers’ monthly payments and help them repay their loans in less time.
Cancellation of student loans and debt relief is good news for borrowers. This is potentially good news for employers too, according to a recent Employee benefits news article. Some may choose to spend the student loan forgiveness money on employee benefit programs other than student loan repayment. For example, employers may see this change as an opportunity to highlight tuition refund and student loan refund offers as a way to attract and retain bright talent. Although the debt of eight million student borrowers is automatically forgiven, some may have to make a formal request. Workers may need help understanding the application process, and employers may need to provide that assistance.
Now is not the time to throw away student loan repayment and emergency savings programs get out with the bathwater for now though. While many federal student borrowers will have their debt forgiven, those with private loans will not. Given that the average student debt is $37,000, even recent college graduates could benefit from employer assistance.
In this environment, understanding your employee population and their needs is essential. Get to know their debt situation and trust your benefits advisors to help you find the programs that will work best for your employees and help them achieve greater financial stability. It may also be useful to review student loan repayment assistance programs and other financial wellness benefits to determine if there are opportunities for improvement or improvement. This may also be a good time to review employer matching 401(k) contributions to determine if there are opportunities to increase matching. This can help capture additional deferrals from employees who may have additional cash flow. All the benefits of their Student Loan Forgiveness Debt Relief.
Steff Chalk
Steff C. Chalk is executive director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff is also Executive Director of The Plan Sponsor University and is currently a professor at The Retirement Adviser University.