Are Your Employees Eligible for Student Loan Debt Forgiveness?

Currently, the COVID-related student loan relief plan that paused payments, interest-free, is in effect until December 31, 2022. But President Biden has unveiled a new initiative to reduce the financial stress of student debt.

This plan will shave off up to $20,000 from student loan debt for those earning below $125,000. But it isn’t necessarily an automatic process.

Some employees may not be sure what to do or when to apply. For employers and HR managers looking for simple ways to show they care, sending out a memo on the government’s debt cancellation can be an easy win.

Why help employees with debt cancellation?

Technically, there’s no mandate for employers to tell their employees about how they can get their debt canceled. But it’s an easy way to show that you care about your employees’ well-being.

Since 2021, there has been an 11% spike in worker financial stress. Employees must contend with high inflation and housing prices and watch their savings diminish. For those with student loan debt, each additional obstacle can feel overwhelming. And it may push your talent to look for another, highly-paid position.

In fact, in the aftermath of the Great Resignation, we know that higher pay was 1 of the main reasons employees left their current position. In fact, 36% of workers said they quit their current positions to look for better wages.

While there are other key factors of workplace satisfaction — such as professional development opportunities and inspiring leadership — employee compensation is still an important factor.

The new debt cancellation offer can help your employees gain ground in their financial struggles.

As a small business owner or HR manager, you don’t have to do much. Just a brief memo with a reminder to apply for the debt cancellation is enough.

OK, what should be in the debt cancellation memo?

The memo doesn’t have to be long. Consider writing a brief update stating:

• Who is eligible for cancellation
• Where to apply (the online application is available now at this link)
• When applications will end
• How long processing the cancellation application will take
• When to submit so that debt will be canceled before the new year

We have answers to all of these questions below.

Rules about federal student loan cancellation

If you have employees earning less than $125,000, or $250,000 if married, they may be eligible for President Biden’s student loan forgiveness initiative. Under this program, individuals can expect a:

• $20,000 reduction for Pell grant recipients
• $10,000 reduction for non-Pell grant borrowers

What your employees may or may not know is that this program is not necessarily automatic. In fact, only 8 million people will be immediately affected.

Here is what we know:

• The Department of Education has an online application for Federal Student Loan Debt Relief.
• It will take 4-6 weeks for the application to be processed and for the DOE to apply for the cancellation.
• The cancellation program will last until December 31, 2023. All applications should be turned in by that date.

Ideally, borrowers should apply before November 15th, 2022 to avoid interest occurring on payments beginning in January 2023.

Your employees may also receive notifications about the cancellation program within their student loan repayment portal. They should review their loan provider’s information for additional insight into the process.

More financial service benefit options for employees

If your employees have been feeling the strain of loan repayments, it may have affected their ability to plan for other financial goals. Even worse, considering the high cost of college, they could still have a significant amount of debt.

To make things easier and build trust, you can offer different financial service benefits for your employees. You may even attract some new talent.

To make things easier and build trust, you can offer different financial service benefits for your employees. You may even attract some new talent.

In fact, between 2021 and 2022, financial wellness benefits shot up from the 3rd most desirable benefit to the 1st.

But what are these financial benefits? Some key options are:

Financial wellness programs

There are plenty of financial wellness and advisory firms that help employees to organize their budgets and plan for retirement. Having a set resource that your employees can trust or even visit for free is a simple way to show you care while ensuring their financial stress doesn’t make it into the workplace.

Some services these programs include are:

• Household budget management
• Credit building
• Short-term savings plans
• Financial crisis management
• Financial goal-setting

One study by the Federal Reserve Banks of Kansas City and Atlanta found that such educational programs help to reduce employee debt, improve retirement savings growth, and make it easier for employees to retire on time.

Remember that these programs typically don’t include highly-specialized fields, such as tax mitigation or wealth management. However, these educational and assistance programs should be able to help employees stay on the right track.

Employee assistance programs (EAP)

An EAP isn’t solely for financial wellness, but its flexibility and versatility can help employees find solutions to expensive services such as therapy and childcare. These programs can offer life and financial planning services, which improve an employee’s work-life balance.

In fact, 86% of workers who used their EAP benefits said it boosted their well-being, and 50% said it helped their workplace motivation.

Student debt repayment programs

There are organizations completely geared to help employees match employee student loan repayments. Considering that the average student debt in 2021 was around $30,000, many employees will still need help, even if a portion is canceled.

And there’s a benefit for employers, too. Thanks to the Consolidated Appropriations Act of 2021, you can make contributions up to $5,250 per year per employee without raising their gross taxable income. This translates into being a tax-free benefit.

In some companies, HR is allowing employees to swap benefits. For example, they can put PTO days towards student loan repayments. This can be a more effective way of ensuring that every employee gets what they need without overspending on benefits.

Employer-sponsored 401(k) plans

The traditional route of financial assistance is providing 401(k) options, and it is incredibly popular.  In fact, 4 out of every 5 employees participate in their employer-sponsored 401(k)s, and 98% of employees consider their 401(k) to be their preferred method of saving for retirement.

Not only are these plans popular, but they are often tax deductible, too. Companies can deduct 25% of the compensation paid up to an annual maximum limit. Small businesses looking to kick off a pension program may also be eligible for a credit equal to 50% of the startup costs.

Reasons to focus on employees’ financial well-being

So, why focus so much on employee financial well-being? During good times and bad, financially secure employees are more motivated. And if they are content with their salary and compensation, they are more likely to stay.

Employee retention continues to be a considerable cost-saving measure for employers. And the process doesn’t have to stress your budget. But financial wellness is only 1 part of the process.

To better understand trends in employee retention, check out our free guides:

• Employee Retention Strategies: An HR Checklist
• People Operations Guide and Checklist for Employee Well-being
• The Zenefits 2021 Benefits Benchmark Report