Student loan debt in the United States hit a record $ 1.6 trillion in 2020, says item in Forbes from February. That’s 45 million borrowers, making student debt the second highest consumer debt in the United States – overcome by mortgage debt alone.
Although millennials are apparently the biggest carriers (75%) of student debt, there seems to be a growing number of baby boomers also having student loans. Many of these baby boomers have taken out student loans for their children or grandchildren and have to dip into their retirement funds (or other financial sources) to pay off the debt.
Student debt has been increasing since many yearsand employers take note. To attract and retain talented workers, a small but growing number of employers are offering Student Loan Repayment Plans (SLRP).
How Student Loan Repayment Plans Work
This benefit allows employers to make monthly contributions to employee student loan debts, typically through a third-party manager. The employer chooses the amount they wish to contribute to the employee’s debt. The contribution goes directly to the principal of the loan, thus lowering the principal and possibly the interest charges. During this time, the employee / debtor continues to make their regular monthly payments to the Student Loan Manager.
For example, PricewaterhouseCoopers (PwC) has would have has paid nearly $ 26 million in student loans to its employees since the benefit was implemented in 2016. The company pays out $ 1,200 annually in student loan repayments to each eligible employee, for a maximum period six years. You can visit and check https://oakparkfinancial.com/ for more loan offers
Bureau of Labor Statistics Benefits investigation for June 2019 reveals that 3% of civil and private sector employees have access to student loan repayment plans. Access increases with company size, which means larger companies (with 500 or more employees) are more likely to offer SLRPs.
Although student loan repayment plans remain largely scarce, utilization rates are accelerating. Through SHRM Employee Benefits Survey 2019, SLRPs have doubled since 2018, with 8% of employers offering the benefit in 2019, from 4% in 2018.
Main disadvantage of SLRPs
One of the main complaints about student loan repayment plans is that the employer contribution is currently taxable for employees who receive the benefit. This obstacle has hampered growth of SLRPs, leading industry observers assume uptake will increase if the benefit becomes tax-exempt.
The CARES law to the rescue
Section 127 of the Internal Revenue Code allows employers to provide employees with up to $ 5,250 in qualified educational assistance on a tax-free basis for graduate and undergraduate courses. Qualifying education assistance includes tuition, fees, books, and supplies.
Article 2206 of the CARES law – promulgated on March 27, 2020 – temporarily extends the tax-free education assistance benefit to student loan repayments. Under this provision, employer-paid student loan repayments are exempt from tax for employees until the end of 2020.
In addition, section 3513 of the CARES Act allows certain federal student loan borrowers to defer payments until September 30, 2020. Collection activities, such as wage garnishment, on delinquent student loans are also suspended until then. The deferral / suspension only applies to loans held by the US Department of Education. It does not cover private student loans.
401 (k) Match as student loan repayment
Following a now famous Private letter decision (PLR) By the IRS in August 2018, some employers expressed interest in modifying their 401 (k) plans to provide student loan repayment assistance. Based on the PLR, employees who contribute 2% of their salary to their student loan through payroll deduction will receive an employer 401 (k) consideration of 5%.
However, the PLR is specific to the business that made the request to the IRS. Until the IRS issues universal guidelines, employers wanting to implement a student loan repayment program that involves a 401 (k) match should seek legal advice to assess the potential benefits and risks.