It’s a happy moment in history for federal student loan borrowers!
After weeks of uncertainty surrounding whether President Joe Biden would follow through on his campaign pledge of widespread student loan forgiveness, the announcement was made that $10,000 would be canceled for borrowers earning less than $125,000 per year.
In addition to the widespread federal student loan cancellation, President Biden’s three-part plan will also provide up to $20,000 in student debt cancellation for Pell Grant recipients with loans held by the department of education, and extend the pause on all federal student loan repayments through Dec. 31 2022.
The White House anticipates that 43 million borrowers will benefit from this relief, canceling the remaining balance of federal student loans for close to 20 million Americans.
While this is progress for federal student loan borrowers that make up the majority of the collective $1.75 trillion owed within the United States, many borrowers that do not qualify—including those with private student loans totaling 7.89% of all outstanding student loans in the U.S—will need to weigh other alternatives for paying off their student loans.
This is where employer student loan assistance can come into play.
In March 2020, to rescue small businesses and protect the economy during the pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) went into effect. Although the focus of the Cares Act was not student loan relief, Section 2206 gave employers a temporary tax-free incentive, allowing them to make up to $5,250 in student loan payments for an employee during a year. The provision was initially set to expire in Dec. 2020, but thanks to the Consolidated Appropriations Act (CAA), this incentive now goes through Dec. 2025.
How many employers are currently offering this perk to employees? According to the Employee Benefit Research Institute, only around 17%. While this number is expected to rise to 31% over the next few years, time is running out for employers who want to take advantage of doing so tax-free.
One of the main reasons employer student loan reimbursement programs have risen in popularity over the last few years is to combat the effects of the Great Resignation and inflation. Since a large number of employees jumping ship fall into the millennial age group, benefits such as student loan reimbursement can be a great way to keep and attract new employees within this segment.
In one survey conducted by the ASA, 86% of employees said they would commit to a company for five years if the employer helped them pay back their student loans. This is a massive incentive for companies struggling with retention to start offering this benefit.
In another study by Guardian, 25% of employees want a student loan repayment benefit, and nearly 7 in 10 millennials surveyed said that a student loan repayment benefit would influence their job decision.
In addition to retaining and creating more loyalty among employees, consider the three following benefits of offering student loan reimbursement:
While there are many other benefits of adding student loan reimbursement to an organization’s benefits offerings, ultimately, it’s up to the business to decide how much would be offered to employees or if this benefit makes sense for their organization.
Want to learn more about education assistance solutions? Check out this solution sheet to discover your options.