For student loan borrowers whose incomes have been affected by the coronavirus pandemic, the new CARES Act promises some much-needed relief. But beyond benefits like payment suspensions and interest waivers, the CARES Act delivers additional help in the form of employer-offered student loan benefits.
For companies looking to attract top talent, it makes sense to pay attention to issues that affect employees’ lives. For young workers, one of the most significant problems is student loans. According to the Brookings Institute, over 42 million Americans have student debt.
To stand out from other employers, offering student loan repayment assistance is a desirable benefit. In fact, one survey found that 60% of adults with student loans said they would think about switching to an employer that offers student loan repayment aid. Now, thanks to the CARES Act, employers can take advantage of tax breaks to help their employees deal with their debt during this difficult time.
Challenges in Hiring
In the Society for Human Resources Management’s 2019 State of the Workplace report, the organization found that companies struggled to find workers to fill high-skilled positions. Employers in different sectors are experiencing a talent shortage, unable to find workers with specialized education and experience.
The industries hardest hit by this phenomenon are healthcare and technology, particularly in data analysis, science, and engineering.
The biggest reason companies said they struggled to hire suitable candidates? Competition from other employers. With a limited pool of skilled workers, companies have to work hard to stand out from other employers to get the best employees.
For skilled workers with student loan debt, one way employers can improve their compensation package is by offering student loan repayment assistance. And thanks to the CARES Act, that’s easier than ever for employers.
What is the CARES Act?
The COVID-19 virus pandemic devastated the United States’ economy, causing millions of people to lose their jobs or to experience reductions in income. With so many people struggling to make ends meet, the government created the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide economic assistance.
On March 27, 2020, President Trump signed the CARES Act into law. As part of the CARES Act, the following changes were made:
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- Stimulus checks up to $1,200: Individuals will receive up to $1,200 based on their 2019 tax returns, if they have already filed their returns. If not, the amount of the check will be based on their 2018 tax returns.
- Extended unemployment protection: Eligible workers who are now unemployed can receive an additional $600 per week for up to four months.
- Waivers of penalties for early withdrawals from retirement accounts: If people tap into their retirement accounts to make ends meet, the 10% early withdrawal penalty is waived.
- Federal student loan payments suspended until September 30, 2020: Federal student loan payments on Direct loans and federally-held FFEL loans and Perkins Loans are suspended for six months. During that time, no interest will accrue on the loan, and borrowers will still get payment credits toward loan forgiveness and loan rehabilitation programs.
How Does the CARES Act Affect Employer Student Debt Programs?
However, another benefit that is commonly overlooked is the expansion of employer student loan repayment assistance programs.
Under the CARES Act, employers can contribute up to $5,250 toward an employee’s student loans from March 27 until December 31, 2020, and the payment is excluded from the employee’s income. It is also tax-free for the employer, since it’s not subject to payroll taxes up to the contribution threshold.
The CARES Act amended the tax code to incorporate provisions of yet-to-be-passed Employer Participation in Repayment Act, allowing employers to pay off up to $5,250 of an employee’s debt tax-free.
Currently, approximately eight percent of employers offer student loan repayment assistance and can take advantage of this benefit. However, it’s available to more companies if they wish to use it.
Previously, the tax treatment of employer student loan repayment assistance programs created a burden on both employees and companies, so this is a substantial benefit that may encourage more employers to offer this perk to their workers.
ELFI for Business
If you are a business owner or a human resources manager looking to improve your recruitment and retention efforts, offering student loan repayment benefits can be a powerful tool. If the idea of building your own program seems overwhelming, consider taking advantage of the ELFI for Business program.
The ELFI for Business program is designed to help employers recruit and retain top talent. In one survey, 86% of workers reported that they would commit to an employer for five years if they received help with their student loan payments. And, three in five survey respondents said paying off student loans is a priority over saving for retirement.
Employer contributions can make a dramatic difference on your employees’ debt. For example, let’s say your employee had $30,000 in student loans at 6% interest and a 10-year repayment term. If you contributed $100 per month toward the loan’s repayment, the repayment term would be reduced by three years. And, the employee would save $11,363.
ELFI for Business also gives your employees other tools to manage their debt, including:
- Newsletters
- New hire onboarding booklets
- Webinars
- Onsite consultations
Customized Student Loan Refinancing Advice
Employers that participate in the ELFI for Business program will also have access to loan advisors to help employees considering student loan refinancing.*
If your employees have student loans with high interest rates, refinancing can help them reduce their rate and save money over the length of their loan. And, by lowering their interest rate, more of their payment will go toward their principal instead of interest charges, so they can get out of debt faster.
ELFI customers have reported that they are saving an average of $278 every month or will see an average of $20,774 in total savings after refinancing their student loans1. When combined with employer contributions, refinancing can be an effective tool to pay off student loan debt.
Helping Employees During COVID-19
During these difficult times when so many are reeling from the coronavirus outbreak, offering benefits like student loan repayment assistance can make a major impact on your employees’ lives. Not only can it help recruit and retain good employees, but it can also build your company’s reputation and brand.
If you’re interested in introducing student loan repayment benefits in your workplace, contact ELFI for Business.
*Subject to credit approval. Terms and conditions apply.
1Average savings calculations are based on information provided by SouthEast Bank/ Education Loan Finance customers who refinanced their student loans between 01/03/23 and 03/01/23. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon a number of factors.
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