The more than 40 million Americans who have federal student loan debt have been granted another reprieve, as the Biden administration extended the moratorium on payments until May, 2022.
Now, borrowers have an extra three months to prepare for the financial burden of once again making these payments. But is this reprieve really enough? For many, the answer is no, says Greg Poulin, CEO of student loan benefits provider, Goodly.
“More than 90% of federal student loan borrowers have not been making payments since the moratorium began,” says Greg Poulin, CEO of student loan benefits provider Goodly. “With the average monthly student loan payment being $400, many borrowers are likely going to face significant challenges resuming monthly payments to their student loans in May.”
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Student loan debt is a $1.7 trillion dollar crisis in the U.S. comprised of both federal and private loans, and while 30% of undergraduates borrow money from the federal government, the total amount they borrow accounts for 92.6% of student loan debt, according to research from the Education Data Initiative, an organization that collects and organizes statistics about the U.S. education system.
Although employers have taken steps to help employees get better control over their financial lives — especially since the onset of the pandemic — just 17% of organizations offer employees a student loan repayment benefit, according to the Employee Benefit Research Institute’s 2021 employer financial well-being survey.
“Employers have come to recognize that they are the direct beneficiary of their workers’ education and that they can, and should, play a role in ensuring that their employees can repay their student debt,” Poulin says.
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The CEO recently connected with Employee Benefit News to share his thoughts on the extended student loan payment moratorium and what that means for employers and employees.
What factors played a role in Biden’s decision to extend the pause on student loan payments?
The Biden administration extended the moratorium due to the surging number of COVID-19 cases driven by the omicron variant. According to the Department of Education, the 90-day extension will allow the Administration to “assess the impacts of the omicron variant on student borrowers and provide additional time for borrowers to plan for the resumption of payments and reduce the risk of delinquency and defaults after restart.”
What does this mean for employers and employees?
For employees with federal student loans, this most recent extension means that payments and interest accrual will resume in May, 2022. Employees can use this 90-day extension to prepare for payments to resume, including looking at options to lower their monthly payments by enrolling in income-based repayment plans and seeing if they’re eligible for public service loan forgiveness programs.
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For employers, the next five months are the best possible time to begin helping their workers repay student debt. Because interest on federal student loans has been suspended under the moratorium, any payments made before May, 2022 will be applied directly to the principal of the loan, further accelerating repayment by shrinking the outstanding loan balance faster.
While federal loan borrowers may be getting a breather, private loan borrowers are still on the hook. What can employers do to help ease this burden?
Unfortunately, private student loan borrowers do not qualify for federal student loan forbearance and must continue making their regular payments. Fortunately, Congress made it easier than ever for employers to help repay their workers student debt with passage of the Consolidated Appropriations Act of 2021. The legislation includes a new tax provision that allows employers to make tax-free contributions of up to $5,250 a year to their employees' student debt, without those payments being included in the employees' taxable income, similar to a 401(k) match.
How realistic is it to believe that federal student loan debt will be canceled?
Widespread student loan cancellation is not going to happen anytime soon and is unlikely to happen at all. While calls for student loan cancellation have garnered seemingly endless media coverage, the reality is that there is virtually no political support for it and it’s proven to be an extremely polarizing issue. While the White House recently said that President Biden would sign student loan cancellation legislation passed by Congress, the reality is that Congress has taken no action on it.
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How have you seen employers handle employees' student loan debt over the course of the pandemic? Have they been doing a good job?
Employers have done a great job helping their employees handle their student loan debt during the pandemic. Before the pandemic in 2019, about 8% of employers offered a student loan paydown benefit. That figure surged to 17% of employers in 2020, a 112% year-over-year increase.
At Goodly, we’ve also seen a significant increase in the average employer contribution during the pandemic. Before the pandemic, it was highly unusual for Goodly's clients to contribute more than $100 per month toward their workers' student loans. Now that student loan repayment is a tax-free employee benefit, we frequently see companies of all sizes contributing $200 to $400 per employee per month.
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Is there still room for improvement?
The biggest area for improvement is to have more companies offering student loan benefits. A recent study by Ramsey Solutions ranked student loan repayment assistance as the second-highest benefit offering that employers are considering implementing in the next year or two, behind only financial wellness.
We often hear from our clients at Goodly that student loan repayment benefits help them hire faster and retain longer. Many employers note that student loan benefits help to build a diverse recruiting pipeline and contribute to the diversification of their workforce. Reduced financial stress has been shown to improve employee productivity and lower levels of absenteeism.
