Student loan payments are resuming: It's time to roll out financial wellness benefits

Three years and nine extensions later, the longstanding federal student loan payment pause will expire. Interest on those loans began accruing on Sept. 1, and nearly 46 million borrowers will need to start making payments in October.  (There’s no chance of further payment pause extensions, due to a provision in the debt ceiling deal passed by Congress on June 2.) Borrowers who left school in 2020 or later will need to gear up for their first-ever student loan payments.

Impact on employers

Education assistance benefits matter to employers as much as to their employees. Financial insecurity aggravated by student debt affects workers’ wellbeing and job performance, inhibits the development of critical skills, contributes to employee turnover — and requires innovative solutions by employers. A 2022 survey through a leading financial services firm found 59% of young workers place a higher value on laying off student loan debt than saving for retirement, home ownership, and emergencies. Organizations taking steps to address this debt typically see greatly improved retention and engagement.

The Saving on a Valuable Education (SAVE) plan

The Department of Education implemented changes to student loan income-driven repayment plans, making it more straightforward and affordable for federal borrowers to repay their loans.  The SAVE, or Saving on a Valuable Education, plan  will cut payments on undergraduate loans in half compared to other IDR plans, ensure that borrowers never see their balance grow as long as they keep up with their required payments, and protect more of a borrower’s income for basic needs. By law, the regulations will go fully into effect on July 1, 2024, but the Department will implement some changes this summer before the student loan payment pause ends.

The SAVE plan, which applies to current and future federal student loan borrowers, will determine payments based on income and family size, and some monthly payments will be as small as $0. The income threshold to qualify for $0 payments has been increased from 150% to 225% of federal poverty guidelines, which translates to an annual income of $32,805 for a single borrower or $67,500 for a family of four. The Education Department estimates this means more than 1 million additional borrowers will qualify for $0 payments under the plan.

How employers can help

It can be a challenge for people to find and access programs like SAVE. In response, employers should consider:

• Providing guidance and counseling tools that can be offered through a number of leading providers. Online decision support tools allow employees to link real-time student loan information (e.g., principal balance, interest rate, repayment plan, payment history) and additional data the colleague provides to recommend the best repayment plan and loan forgiveness options (if any) given their specific financial goals. Additionally, the guidance is specific to the new IDR loan forgiveness rules.
• Offering one-on-one, unbiased consulting from highly experienced student loan and finance professionals. These coaches bring an unmatched level of expertise to work with employees on their unique financial situations to determine the most strategic and effective way to tackle their student loan debt. Many coaches have worked in college financing offices or at student loan companies assisting thousands of people with their student loan debt and repayment strategies and understand the overall financing market. One-on-one coaching sessions with an experienced advisor can be scheduled to review the colleague’s current loan structure and overall financial wellness, discuss options and strategies, and design a custom repayment plan. This includes helping to navigate the new IDR plans.

Help employees pay down debt

Companies with the available resources can take their support for employees with student loans a step further, providing student loan repayment. In the past, the drawback is that this was considered taxable income to the employee, and may worsen his or her financial situation. Changes introduced as part of The CARES Act of 2020 and the Secure Act of 2022 make receiving tax-free benefits possible.

Research shows employees who have student loan debt are less likely to participate in their employer’s retirement plan than those who do not have the debt.  Beginning 1/1/24, provisions under Secure 2.0 will enable employers to make matching contributions to an employer-sponsored retirement plan based on an employee’s qualified student loan payments — even if the employee does not directly contribute to the retirement plan.

Related: Payment due! As student loan payments resume, employers can take these key actions

The CARES Act expanded an existing tax break for educational assistance by adding student loan repayment as a qualifying educational expense. That expansion — of Section 127 of the tax code — allows employers to pay up to $5,250 a year toward a worker’s student loans.  The payments are tax-free for the employee and business.  The expanded tax break for student loan payments is temporary, however. It will end in 2026, absent action from Congress.

Many employers are leveraging both of these options to help employees not only pay down debt but also support long-term retirement savings.

Last word

We all know debt creates stress. In the workplace, this affects employee wellbeing, productivity, career decisions, absenteeism rates, and tanking morale.

Now, companies are in a unique position to help with resources and information through the employer’s total rewards programs. Tackling student loan debt through these programs is a win-win for both employers and their employees.

Tom Kelly is the U.S. Voluntary Benefits Leader at Buck, a Gallagher Company, which is an integrated HR, pensions, and benefits consulting and administration services firm.