Student Loan Payments – In addition to avoiding a US government default, the federal cap on federal student loan repayment was set to expire on March 13, 2020, but is set to expire on August 29.
As many employees soon face the financial burden of repaying federal student loans, plan sponsors have the ability to ease that burden by providing student loan benefits, as outlined in a new matching provision in the SECRET 2.0 Act of 2022.
Student Loan Payments
“Now is the perfect time to think about strategies to help reduce student loan debt,” says Barrett Scruggs, president of SoFi at Work. “On the one hand, plan sponsors don’t have to worry about student debt stress because most of their participants don’t have to pay back their federal loans. It’s all changeable.”
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Scruggs says that many student loan borrowers don’t improve their overall debt burden by defaulting on payments, and actually accumulate more debt in credit cards and car loans. He says policy sponsors should connect with their enrollees to find out what student loan benefits are available, and says the matching provision in SECRET 2.0 is “simple to implement” and will help participants with student loan stress.
Secure 2.0 offers an optional privacy policy for employers to contribute to retirement account 401(k), 403(b), 457(b) and SIMPLE IRA accounts. Employers do not have to independently verify that the loans were made; Employees will be able to manage their certification. This option is available from December 31, 2023.
SoFi to Work, a provider of financial and educational benefits, announced Thursday the launch of a new student loan verification service — a program to help plan sponsors comply with Secure 2.0 regulations.
SoFi claims that SLV “simplifies the process of matching employer pensions with employee student loan payments.”
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“SLV helps employees make more retirement plans through 401(k) or 403(b) contributions while paying off student debt,” he said in a press release.
SLV shares SoFi’s comprehensive financial health platform called the SoFi to Work Dashboard, which includes a variety of employee tools, including a loan navigator, refining options and financial education resources.
David Amendola, senior director and head of intellectual capital for benefits and compliance consulting at WTW, said Secure 2.0 ensures that employees do not directly pay back their student loan debt using dollars that would match their retirement savings.
“But it indirectly allows the employee to receive an adjusted retirement benefit while paying off their student loans,” Amendola says. “In theory, if he was struggling, they could take some of the money they put down to match [401(k)] contributions to pay off their student loan debt.”
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Amendola adds that in addition to the Secure 2.0 provisions, there are other direct benefits that owners can offer. For example, an employer can contribute $100 per month to eligible employees who have student loan debt, and can contribute up to a maximum of $10,000 over a lifetime.
The biggest downside to this reimbursement benefit is that it can be expensive for large organizations with many employees with student loans.
Another potentially useful benefit of student loans is an income-driven repayment program offered by the government, called Pay As You Earn. Repayment is based on the student loan’s gross income and family size. Those who do not pay off their student loans can receive student forgiveness for the remaining loan balance at the end of the repayment period.
Amendola is working with President Joe Biden’s administration to make the proposed regulations final in January and believes the program changes are “really impactful.”
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“Once the Biden administration starts a new program, I believe it would be incredibly beneficial to lower the monthly student loan payments for employees, get them on the road to debt forgiveness faster, and eliminate the potential interest that comes with ‘I do; MONTHLY,'” Amendola said.
Meanwhile, the Supreme Court is expected to rule by the end of June on Biden’s plan to forgive up to $20,000 in student loan debt for 40 million eligible borrowers. The Senate last week approved a House resolution to rescind the student amnesty plan, but Biden has vowed to veto the decision.
Dave Stinnett, head of strategic retirement consulting at Vanguard, says the IRS, through the Appropriations Act, allows employees to receive up to $5,250 per year tax-free for qualified education expenses, essentially a deduction to pay. Student loan. The contribution is available until December 31, 2025 and the annual amount is calculated separately from the regular employee’s salary. However, payments beyond this may be subject to tax.
“A lot of employers are using [it] and they’ve found it’s very helpful in recruiting and retaining employees, which is a huge benefit, especially for younger workers,” says Stinnett.
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When RUNNERS works with plan sponsors to implement student loan benefits, Stinnett says his team asks a variety of questions to understand the employer’s end goal.
Those goals range from creating a recruiting tool to attract and retain talent to helping employees contribute more toward paying off their 401(k)s, he explains.
Administrators can provide information to plan sponsors to better determine the financial impacts of plan sponsors offering student loan benefits. For example, employers in their 20s and 30s can analyze their employees and provide them with confidential advice on communication rates and savings rates, Stinnett says.
“If their participation rate is strong and not different from older workers, [plan sponsors] can still offer that benefit, but it’s less compelling,” says Stinnett. “It’s different if the younger people don’t join the project. Maybe it’s more urgent and you want to act quickly and deliver this.”
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Stinnett says more policy sponsors are now more aware of implementing the features outlined in SECRET 2.0 than the optional student loan provision, but many are curious and want to understand how it is administratively implemented.
RUNNERS offers its student loan program in partnership with Candide, an AI-powered student loan and loan optimization platform. Student loan debt management services are seamlessly integrated into Vanguard member websites.
The platform helps borrowers find a plan that repays their budget. Helping eligible workers determine whether they qualify for retirement plans saves users an average of $326 per month, according to PROMOTERS.
Additionally, the development platform helps borrowers explore ways to lower their interest rate or monthly payments in the multi-lending market. The Public Service Loan Forgiveness module helps borrowers quantify, manage and track their progress toward PSLF, a federal program that erases student loans after 10 years. Fidelity Direct offers student loan payment options to employers, as well as student aid loan options that work with plan sponsors. Fidelity’s direct student loan service providers have seen a 78 percent reduction in employee turnover, said Jesse Moore, Fidelity’s senior vice president and head of student loans, in an emailed statement. “We offer this benefit to our loyalty partners here, and more than 50% of new hires with student loans say that student loans were a major factor in their decision to join the company,” said Moore.
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Overall, Amendola believes that reinstating student loan payments will have a “huge impact” on the workforce, especially those who entered the workforce within three years and still have loans to repay.
“Now [the payments] start and the monthly income drops dramatically, and I think it will,” Amendola says. “You have all these employees who are now in a more difficult position. … As I say, it is true that the opportunity to directly help employees has an extraordinary impact not only on their daily lives, but also on how productive they are as an employee and how faithful they can be to this organization. ..to help them in a truly challenging time.” The Financial Aid, Relief and Security (CARES) Act includes two critical provisions to help Americans with student loans. One may take a loan. suspending payments until September 30, and this relief was later extended to December 31.
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