Student loan payments restart in October. Are employees ready?
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Starting in October, employees across the U.S. will have to resume payments on their student loans, and are looking to their employers for financial relief now more than ever.
Only 7% of U.S. employers offered student loan repayment assistance at the beginning of 2022, according to a survey from the Society for Human Resource Management. That number is expected to rise to nearly half in the next few years, according to a 2022 survey by the Employee Benefit Research Institute, as companies are faced with employees' vocal demands.
"Employers are going to have to do something," says Thomas Campos, the CEO of Spinwheel, a software company that enables benefits providers and employers to offer student loan assistance programs. "Until now, they have been able to wait because they were waiting to see what happens with President Biden's forgiveness plan and the Supreme Court, but that's all been cleared up. And to me, that's one of the only things that came out of the decision — we finally have some clarity."
Currently, there are three major ways employers are helping their workforce pay off their student loans, according to Campos. First is simply offering financial literacy tools to help employees strategize their payments. Second is through the SECURE Act 2.0, which allows employers to make matching contributions to employees' loans as if they were 401(k) contributions. The third is through student loan repayment assistance programs, which were incentivized during the pandemic by the now discontinued CARES Act, which made it possible for employers to contribute $5,250 a year to employees' loans, tax free. Today, he notes, these kinds of employee benefits are available through private vendors and programs.
The outstanding balance for student loan debt has reached $1.6 trillion across 43 million Americans, according to the Federal Reserve. The average federal student loan debt is $37,338 per borrower, according to a 2023 report from the Education Data Initiative, and the private student loan debt averages at $54,921. In June of 2023, the Supreme Court voted to reject President Biden's plan to forgive up to $20,000 in federal student debt for every borrower.
"Every company is looking to be the best they can, but they're not going to achieve that if they're not doing something about student loan debt," Campos says. "Productivity suffers, focus suffers and most importantly. they're just going to lose some of their top talent."
Keeping up with employees' student loan documentation is hard on both employees and employers. For any kind of assistance, whether it's through 401(k) contributions or repayment programs, employees have to regularly prove their eligibility to receive assistance. Spinwheel provides technology that automates the process, re-submitting an employee's documentation when needed.
"Without having the right technology in place all of the burden is on the employee, which results in these employees sometimes incorrectly getting dropped from these programs," Campos says. "We streamline all of that, so the employee only has to enroll once."
Employers often fail to provide student loan assistance out of fear that it will be too big of a lift to implement, Campos says. While there are some financial investments that have to be made in order to get student loan programs off the ground, the ROI in terms of employee loyalty and productivity is significant.
"Studies have shown that when you do programs like this, you're going to see less churn in your employee base," he says. "There are fantastic solution providers out there that make it a simple integration for any company to turn this on for their employees."