Student Loan Payments Will Impact Your Employees. Here's How to Help.

For the past two and a half years, most borrowers with federal student loans have not needed to make any payments. And a lot has changed over that time: people have moved across the country, started families, bought houses, and changed careers. Resuming payments in January 2022 will be an unwelcome headache, especially for those who have not reserved space in their budgets for a student loan payment.  

There is a good chance that at least some of your employees will be affected by this: about 20% of Americans have student loans. Of most concern to employers is how this impacts their employees’ mental and physical health. More than 60% of student loan borrowers reported that student loan debt has had a negative effect on their mental health. Student loan debt has also been linked to an increase in risk factors for heart disease and chronic inflammation. 

Employers can get ahead of this problem by providing their employees with resources, knowledge, and even payment assistance. 

Budgeting

Before payments resume, borrowers should take the time to re-evaluate how they would reallocate their current resources to cover their student loan payments. If the employee is on the standard ten-year repayment plan, their payment will likely be the same as it was before the pause. If an employee is a new grad who has never had to pay on their loans before, or they are on an income-based repayment plan and have experienced a change in income, they first need to estimate their monthly payment before they can determine how they will fit in in their budget. Federal Student Aid’s loan simulator is a great tool for this.

Doing the work ahead of time to figure out where the money for the student loan payment will come from will help reduce anxiety ahead of payment time. Employers can help by offering financial wellness benefits that include budgeting help from a financial professional.

Repayment Plans & Consolidation

If an employee doesn’t have enough room in their budget for their loan payment and they are on the standard ten-year repayment plan, they can look into an income-based repayment plan under which loan payments are 10%-20% of a borrower’s “discretionary” income.  If the Biden administration institutes its new income-driven repayment plan, borrowers will be able to get their payment down to just 5% of their income.

Borrowers who make too much to benefit from an income-based repayment plan can still lower their payments through consolidation if they haven’t consolidated their loans already. This restarts the clock on the 10-year repayment period which lowers the payment. Once again, the ability to speak to a financial professional about the pros and cons of their repayment options will help employees make a choice that’s right for them.

Repayment Assistance

Half of all federal student loan borrowers owe $20,000 or less. Paired with at least $10,000 in student loan forgiveness, employers could help these employees eliminate their student loan debt completely in two years or less through $5,250 annually of tax-free student loan assistance payments through 2025. While this won’t help with the immediate budget constraints of student loan payments, it can help employees to know that there is light at the end of the tunnel. It’s also a good recruitment tool and incentive for current employees to stick around.

Public Service Loan Forgiveness

For non-profit employers, Public Service Loan Forgiveness is a big selling point, especially for employees with hefty federal student loan balances. Non-profit employers can go the extra mile for their employees by making sure they know about the program and the current PSLF limited waiver expiring on October 31, 2022. They should also make it easy for employees to certify their employment annually. Even for-profit companies can go the extra mile to notify employees about the PSLF waiver in case their employees who worked for a non-profit organization in the past (and may again in the future) can get credit for previously ineligible payments when they worked for a non-profit. 

If your employees need help budgeting for student loan payments and evaluating their repayment options, reach out to our team at enterprise@fingyms.com or submit an inquiry.