How Biden’s Student Loan Relief Impacts Employer Plans and Planning

How Biden’s Student Loan Relief Impacts Employer Plans and Planning

Some employers had found a competitive edge in recruiting and retention by offering student loan assistance benefits. Others were considering adding them to their rewards programs. Then, Biden’s student loan relief was passed, leaving employers to ponder their next move.

As reported on BenefitsPro.com in September, 4 of 10 employers are taking another look at what to do with student loan benefits following the release of Biden’s plans. “The administration is directing the U.S. Department of Education to cancel $10,000 in federal student loan debt for borrowers earning less than $125,000 annually. Pell Grant recipients will see up to $20,000 eliminated. According to the White House, this initiative will assist up to 43 million borrowers, including eliminating the full remaining balance for roughly 20 million people.”

In an International Foundation of Employee Benefits Plans survey, almost 9% of participating employers offer a company student loan benefit and 16% are considering offering one. 11% are going to take another look at their strategy; 60% don’t plan on making any changes; and 31% don’t know what they’re going to do. Of the employers that do offer a benefit, 28% reimburse the employee directly; 21% offer refinancing; and 3% provide a match in a defined contribution account. Participating employers indicate student loan benefits help with retention and recruitment; reduces employees’ financial stress; and drives employee engagement. On the other hand, some employers have faced pushback from employees who don’t benefit.

What do employees think? As reported on BenefitNews.com, a survey conducted by Betterment at Work found almost 60% of employees felt their employer should help them pay off debt. 74% indicated they’d leave their jobs for another company offering loan repayment benefits.  Perhaps the most potent finding: 86% would stay with an employer for at least five years if they offered repayment benefits.

Employers striving to regain their footing following the Great Resignation and Great Reshuffling may want to take note, especially since the impact of Biden’s plan is limited to those who incur Federal student loan debt by June 30, 2022 and who meet certain income requirements. Even after Biden’s plan pays out benefits, 23 million will still have student loan debt (not including new debt incurred after June 30.)

According to Forbes, more than 50% of today’s students leave college with debt, the average being $28,950. 92% of loans are federal, with the balance being private. Borrowers between 25 and 34 owe about $500 billion in federal student loans; between 35 and 49 owe $620 billion; between 50 and 61 owe about $282 billion; and 2.4 million aged 62 or older owe $98 billion in student loans.

The application for student loan forgiveness under the Biden plan is scheduled to open this month. Eight million people are expected to receive automatic forgiveness; the balance need to apply, but there are some issues being worked through. Just last week, eligibility was scaled back due to legal challenges. In addition, some borrowers want to opt out of the loan forgiveness to avoid state taxes that they would not be subject to otherwise. The number of cases on the docket challenging the law is rising.

While details surrounding Biden’s plan are being settled, the clock is ticking on another benefit offered under the Coronavirus Aid, Relief and Economic Security (CARES) Act to employers. As reported by The College Investor,  “Section 2206 of the CARES Act allows a portion of employer provided student loan assistance to be excluded from income. Whether those payments are made directly to the employee or the lender, they will be tax-free. The income exclusion is up to $5,250 per year per employee.” As of now, this tax advantage is available through December 31, 2025.

For updates on Federal Student Loan Forgiveness, sign up on the U.S. Department of Education subscription webpage.

While we’re not benefit experts or lawyers, at RBT CPAs, we do know taxes, audits and accounting. If you have any questions about how the CARES Act income inclusion may impact your company, give us a call. We’ve been supporting businesses and municipalities in and around the Hudson Valley for over 50 years.