How companies can supplement student loan forgiveness. Student loan forgiveness is coming, but it’s not a perfect solution for all employees. Here’s how to support your team as loan forgiveness goes into effect.
In August 2022, the Biden administration announced the rollout of their student loan relief program. The program is designed to help up to 43 million borrowers, but it doesn’t support everyone the same way.
Companies can help fill in the gaps. Learn more about how the plan affects different borrowers and how companies can supplement the government program.
Who qualifies for student loan forgiveness?
According to the Department of Education, two types of borrowers are eligible for relief: Pell Grant recipients and individuals earning less than $125,000 annually.
- Pell Grant recipients are eligible for up to $20,000 in debt cancellation, whereas
- Borrowers earning less than $125,000 ($250,000 per household) are eligible for up to $10,000 in debt cancellation
Employees that have worked in public service (federal, state, local and tribal government or a non-profit organization) for at least 10 years, even if not consecutively, may be eligible for the Public Service Loan Forgiveness program — which can eliminate all of a borrower’s student debt. For more information, see the White House’s website.
Here are 3 innovative ways companies can supplement student loan forgiveness for all:
The skyrocketing student loan debt crisis affects people differently — for some people it affects them directly, for others it may impact how where they educate their kids. Here are some ways companies can help expand the impact of student loan relief.
1. Invest in financial wellness tools to supplement student loan forgiveness
Student loan payments are set to resume in January 2023 and for many borrowers, it’ll be the first time that they’ve made payments in over two years. It can be difficult making the adjustment to repayment, especially when student loans haven’t been a line item in Americans’ budgets for so long.
With financial wellness tools, employees can learn how to re-integrate student loans into their monthly budgets, while balancing other financial goals (such as homeownership or paying off credit card debt). Budget calculators and other debt management tools can help employees identify margins in their budgets and work toward financial wellness.
2. Create (or update) existing student loan benefits
According to the Employee Benefit Research Institute, 17% of employers offer student debt assistance and about 30% “plan to offer” such benefits, yet a big gap still exists in terms of benefits offered. To fill this gap some companies have offered flexible plans.
For instance, Fortune 100 company Abbott allows employees to redirect what would be 401(k) contributions toward their student loans and still receive Abbott’s 5% retirement contribution. This allows companies to support employees with student loans, while ensuring employees without student loans don’t miss out on benefits.
If your company currently offers student loan benefits, think about updating them. Some companies have expanded into offering academic scholarships to their employees’ children — this is especially helpful for employees who may not have student debt themselves but are planning to support their college-aged children.
3. Provide financial advising to employees to help navigate student loan forgiveness
Looking deeper into Biden’s plan, the administration is vying to change how people repay their loans. For example, the administration has proposed that borrowers pay 5% of their income each month in repayments, compared to the previous 10%.
In addition, the Department of Education proposed a rule to cover a borrower’s unpaid monthly interest, as long as they make their monthly payments. This is to curtail the exponential growth of loan balances, due to compounding interest fees. With a financial advisor, employees can learn how to navigate these changes and understand what they may mean for their financial situation.
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