The coronavirus pandemic has taken its toll on employees around the world, forcing many people to work from home and many more completely unemployed. More than 3 million people have filed for unemployment in the United States since early March, leaving incomes volatile as bills, loans and other expenses loom.
Due to the impact of the pandemic, the president on Friday signed the CARES Act, a $ 2 trillion stimulus bill to bring some relief to Americans. For the 44.7 million people struggling with student debt, the bill offers welcome help.
The bill’s student loan provisions will allow most borrowers to withhold their monthly payments until September 30, without financial penalty. It also includes a temporary provision that allows employers to contribute up to $ 5,250 to each worker’s student debt until December 31, tax-free.
“We believe the tax-free treatment of employer contributions on employee student loan debt will fundamentally unlock the uptake of this benefit by employers large and small across the country,” said Scott Thompson, CEO of Tuition.io, a benefit for student loans. seller. “While it is unfortunate that this law was passed under these circumstances, the tax exemption included in the stimulus bill is incredibly important.”
Thompson says that as a result of the bill, Tuition.io has already received requests from employers wanting to move forward with launching a new student loan repayment benefit for their employees.
“This benefit has the potential to mobilize US businesses, large and small, to dramatically reduce the overall amount of student debt,” Thompson said. “If every employer in the country offered this benefit, we could pay off hundreds of billions of debt in just a few years. Removing the drag this debt has on our economy would increase consumption and spur growth that could benefit everyone, not just those struggling with student loans. “
About 63% of U.S. employers already offer some level of tax-free tuition assistance, which allows their employees to receive up to $ 5,250 per year for qualifying education expenses, said Greg Poulin, CEO of student loan benefits provider Goodly. The CARES law also amends article 127 of the tax code to incorporate the provisions of the law on the employer’s participation in reimbursement. This provision allows employers to pay up to $ 5,250 of an employee’s student debt tax-free.
“This provision of the CARES Act level the playing field and makes access to tax-free employer education assistance fair and equitable for all employees,” said Poulin. “One of the keys to supporting employees during these uncertain times is helping them with their student loans. The CARES Act offers employers a powerful opportunity to have a significant impact on the financial well-being of their employees, which is ultimately good for the economy.
Student loan repayment programs can be a way for employers to attract and retain talent, but they are still vastly underutilized, despite their high demand among employees. With total student loan balances in the United States exceeding $ 1.5 trillion, only 8% of employers offer these benefits, according to the Society of Human Resource Management. Although that number has doubled from 2018 figures, employers should actively help their workers reduce this burden, said Kate Winget, managing director of Gradifi by E-Trade.
“Employers have always taken such a proactive role in the financial well-being of their employees upon retirement and by introducing them to banking or mortgage resources,” she says. “With this generation entering the workforce, student debt is the number one financial stressor it suffers from. ”
Last year, financial services company E-Trade saw an opportunity to enter this market and acquired student loan provider Gradifi. The $ 30 million deal improved the company’s financial wellness product offerings.
Some employers who offer student loan assistance benefits include AI technology company GumGum, Massachusetts Blue Cross Blue Shield, Trilogy Health Services, and PwC.
In 2015, PwC began offering $ 1,200 per year for six years to help employees repay their student loans. This reduced the principal obligations and interest of participants by up to $ 10,000 and shortened their repayment period up to three years. To date, PwC has paid off over $ 37 million in student debt through this program and more than 8,200 employees have signed up for the benefit.
“Societally, the increase in student debt has reached a critical point,” said Rod Adams, head of talent acquisition at PwC in the US and Mexico. “It affects when professionals start families, buy homes and save for retirement. This advantage is a game-changer as we help our employees better prepare for their financial future, especially in times of economic uncertainty. “