Student loan relief has been extended through January 2022. What does it mean for employers?

President Biden recently announced that student loan forbearance would be extended through January 2022. The pandemic-related relief measure pauses payments and waives interest on federal student loans. The moratorium, which has been in place since March 2020, was set to expire at the end of September.

At Goodly, we partner with companies to help them offer student loan repayment and financial wellness benefits — and we hear a lot of questions on those topics. Below are some of the most frequently asked concerns of employee-borrowers and employers about the forbearance extension.

When will borrowers have to start paying their student loans again?
In March 2020 Congress granted a six month forbearance period to student loan borrowers with passage of the CARES Act, which relieved borrowers from making payments on federal student loans and waived interest accumulation.

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The initial forbearance period was subsequently extended by President Trump and then President Biden. The most recent extension means that payments will resume in February 2022.

Why was the payment pause extended and is this the final extension? 
Education Secretary Miguel Cardona says the extension “will give students and borrowers the time they need to plan for restart and ensure a smooth pathway back to repayment.”

The Department of Education, however, explicitly warned borrowers not to expect another reprieve, stating “This additional time and a definitive end date will allow borrowers to plan for the resumption of payments and reduce the risk of delinquency and defaults after restart.”

Secretary Cardona also emphasized that this will be the “final extension.”

What challenges will workers face when payments resume in February? 
More than 90 percent of federal student loan borrowers have not been making payments since the moratorium began. With the average monthly student loan payment topping $400, many borrowers are likely going to face significant challenges resuming monthly payments to their student loans in February following a nearly two year hiatus.

Read more: Student loan debt is crushing employees’ mental and financial wellness. Is it time for employers to take action?

More than two-thirds of borrowers said they’re not ready to start their payments again, according to a study conducted by The Pew Charitable Trust. Pew further noted that many student loan borrowers will need assistance to smoothly transition back into repayment and avoid delinquency and default.

How can employers help? 
The thought of making large monthly student loan payments can often be daunting and overwhelming for many of the 42 million Americans that will have to resume payments to their federal student debt in February 2022.

Fortunately, Congress gave employers a powerful new tool to help support their workers saddled with student debt with the passage of the Consolidated Appropriations Act of 2021. The legislation includes a provision that allows employers to make tax-free payments of up to $5,250 a year to their employees’ student debt, without those contributions being included in the employees’ taxable income.

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At Goodly, the most frequent employer contribution we see is $100 per month, which can help the average borrower reduce their monthly student loan bill by 25 percent.

Employers should also note that the next six months are the best possible time to begin helping their workers repay student debt. Because interest on federal student loans has been suspended, any payments made before February 2022 will be applied directly to the principal of the loan, further accelerating repayment by shrinking the outstanding loan balance faster.