The COVID-19 pandemic has highlighted acute uncertainty for student loan borrowers, and many are actively seeking holistic approaches and solutions to dealing with debt. Rapidly changing income and policies surrounding student loans have led borrowers to seek comprehensive solutions that can be customized to meet their changing needs. In this uncertain environment, employers have the opportunity to help their employees who may be struggling with the financial difficulties of student debt.
The relationship between employers and employees
In light of the new tax-efficient treatment of employer student loan repayments, employers and borrowers should consider student loan repayment as a standard part of all compensation programs.
Debt holders who work for a student loan repayment employer can save, on average, more than $ 30,000 in loan repayments and taxes with this benefit. This in turn would eliminate over five years of payback time.
It is important to note that there is also a provision in the SECURE Act 2.0 that would allow employers to make tax-free contributions to their employees’ 401 (k) plans. These matches can be a game-changer for employees burdened with heavy student loan payments. Contributions would allow borrowers who might not otherwise be able to save for their retirement to invest earlier in tax-efficient savings vehicles.
Encourage employees to take advantage of payment suspensions
When taking office in January, President Biden ordered the Department of Education to extend the suspension of payment of coronavirus-related student loans and the 0% interest rate on certain federal student loans until end. September 2021.
Employers should encourage their employees to continue making payments during this period no matter what. Currently, 100% of any payment made on federal loans goes directly towards reducing the principal of the loan.
For borrowers who are early in their repayment process, this means that every dollar sent to pay off debt will ultimately save more over time.
Consider an income-driven repayment plan
Employers should also encourage employees to assess whether an income-based repayment plan might be beneficial. With this type of plan, the monthly payments correspond to the salary of an employee.
Custom tools can help ease this once arduous process in just a few minutes. The average borrower who switches to an income-based repayment plan will save $ 280 per month when they start repaying again.
Use reimbursement platforms
Borrowers should take advantage of the many personalized repayment platforms and tools at their fingertips. Users who take advantage of these tools can save tens of thousands on the total cost of their student loans. In particular, borrowers should look for technology that uses effective debt management tools as well as bank-grade security.
Employers should encourage employees to seek scalable solutions that can match their individual financial situation to a personalized plan. Rather than seeking ad hoc solutions that may or may not meet their needs in the years to come, borrowers and their employers are better served by a holistic, scalable and personalized approach to student debt management.
Laurel Taylor is the founder and CEO of FutureFuel.io. Laurel’s vision has been unwavering since the company was founded in 2016. Laurel envisioned a new standard in the workplace, one that would provide benefits that would solve student debt, as well as help with tuition fees. retirement savings, serving the overall financial health of employees. and well-being. Laurel’s personal experience with student debt continues to drive her relentless quest to resolve this issue, in partnership with employers, policy makers, financial institutions and academia.