5 Things to Think About Before Introducing a Student Debt Benefit
In light of the global pandemic, the federal government’s Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was passed in late March, has several provisions related to student loan debt that employers and employees should be aware of including:
1 – Payments on student loans will not be required through 9/30/2020.Nonpayment during this time will not yield any negative repercussions for the payer (such as a credit score hit), and interest will not accrue during the six months. This exception applies to direct and federal family education loans, but not private loans. In addition, borrowers who can afford to continue making minimum payments (or make additional payments), will have all of these payments apply toward principal during this period, allowing them to further benefit by paying off their student debt more quickly.
2 – If an employer would like to help an employee pay down their student loan debt as an added benefit during this difficult time, the employer can make a tax-free payment of up to $5,250 per employee during 2020.Prior to the CARES Act, employer payments were fully taxable to employees. Employers are hopeful that additional legislation will make these tax changes permanent.
In 2018, Americans held a whopping $1.5 trillion in student loan debt, beating both the national auto and credit card debt rates. This number has grown exponentially in recent years, having an impact on all employees but arguably hitting the millennial generation hardest. As a result, employees are deferring home purchases and retirement savings due to their student loan obligations. In turn, this creates a challenge for employers working to recruit these employees, who are experiencing financial challenges and not at optimal productivity or engagement.
Employers across the country are recognizing this crisis, and implementing solutions to mitigate its effects for employees. However, nothing is simple. In considering a student debt relief benefit, organizations need to think about:
- Strategic goal(s)
- Financial wellness
- Funding and taxability
- Administrative complexity
- Employee demographics