Helping employees repay their student loans

As student debt continues to increase, more employers are beginning to include a student loan repayment plan as an employee wellness benefit.  According to a recent Society of Human Resource Management (SHRM) survey, approximately 7% of US companies have implemented a student loan repayment solution and this will grow to 30 – 35% in the next few years.

For the employers who are non-profits or a government agency, this new benefit may be hard to implement due to budgetary constraints.  These types of employers do have one major advantage, Public Service Loan Forgiveness or PSLF.  Most employees who work for non-profits or government agencies will qualify for PSLF. 

To date, qualifying for PSLF has been difficult, due to the lack of information.  PayForED’s software, the Student Loan Repayer generates the customized answers that are not always available through the loan servicing companies.  The major issue with current information is that to qualify for PSLF, the employee needs to use the Income-Driven Repayment(IDR) methods and this can be confusing.  The student loan services are not able to properly advise people on all of their options. . 

Current Student Loan Repayment Plans

Most student loan repayment benefit plans depend on a company’s cash contribution.  These contributions are sent directly to the lender from the employer and never pass through the employee.  Current company contributions for student loan repayment plans are considered income and are reported as wages on the employee’s W2.  For most non-profit or government agencies, these additional contributions are often not possible due to cost,  and for this type of borrower, these additional contributions could actually increase the borrower’s student loan monthly payment.

Another concern is the current employee repayment benefit plans focus only on the individual borrower and not a household.  For most student loan repayment plans, this is a major shortcoming.  As more dollars are now repaid using the IDR methods, repayment decisions need to provide advice on managing the household’s adjusted gross income.  For example, a married couple would be getting incorrect advice if they had student loans and were trying to qualify for PSLF.

Trend to Using Income-Driven Repayment Methods

According to the 2018 Department of Education Data, approximately 54% of student loan dollars are now repaid using an Income-Driven Repayment (IDR) method.  For non-profits and government agencies, this is a good thing.  The IDR methods are the only repayment methods that qualify for Public Service Loan Forgiveness (PSLF).

With this growing IDR trend, employers must change their loan repayment benefit strategies.  Traditional added contribution strategies may not help the employee trying to qualify for PSLF.  The additional income will raise their adjusted gross income resulting in a higher monthly loan repayment amount.

The chart bellows show how it can impact a married person’s options.  A simple adjustment to a person’s or couple’s adjusted gross income, tax filing status or debt structure could add thousands of dollars a year in a family’s pocket.  This is especially true for employees who qualify for PSLF.  The chart below shows how a married employee’s monthly payment can change depending on the various combinations of options.  It is worth between $1,750 and $5,400 in additional annual income and possibly the loan forgiveness.

IDR Monthly Payment Comparison Chart

Tax Filing Method Married/Joint Married/Joint Married/Separate
Student Loan Structure Both Both One Borrower
PAYE Monthly Payment $73 $523 $219

 

Fixing Public Service Loan Forgiveness Awareness

At this time, employees who qualify for Public Service Loan Forgiveness have been unable to get the proper advice from the loan servicers.  The loan servicers are limited in the advice that they can give borrowers.  Tax filing options need to be part of the new IDR trend. The loan servicers are legally not able to give this advice.

Employers have struggled to find the proper sources of information to help their employees navigate the PSLF process.  This is due to the increased complexity of the repayment plans, tax filing, loan type and the rules for PSLF.

By giving employees the proper advice and tools, non-profit companies and government agencies can now add a very cost-effective student loan repayment benefit plan without the traditional contribution model.

Temporary Expansion of Public Service Loan Forgiveness

The lack of proper advice regarding PSLF has resulted in many applicants being denied forgiveness of their federal loans.  This was due directly to the loan services and the borrowers not understanding the various rules of PSLF.  As a result, the federal government has funded the Temporary Expansion of Public Service Loan Forgiveness or TEPSLF.  The rules are specific and currently, have a limited budget.

With this new TEPSLF opportunity, many employees who were previously denied may now qualify for PSLF.  These same employees will still need to understand the various IBR calculations and may feel the stress and confusion of not understanding the rules of the TEPSLF program. This is where having a Student Loan Assistance benefit that has a holistic process can help to keep these employees informed about the direction to take for loan forgiveness.

A Hidden Benefit for Parent PLUS Loans and PSLF

Some parents may be able to benefit from the proper advice regarding paying for college for their children.  An employee would need to understand their retirement timeline, debt structure, and repayment strategies.  Image your employees being able to minimize their children’s student loans and attending their dream college while using their PSLF and their Student Loan Repayment Benefit.  

Summary

For companies to attract and retain the best talent, more companies will need to add a student loan repayment benefit.  Many non-profits and government agencies are unable to offer traditional student loan repayment plans.  PayforED offers a more complete suite of student loan repayment solutions that can help more employees of non-profit companies and government agencies.  Our student loan repayment benefit programs are more cost-effective and provide better education and advice than traditional solutions.

Get the advice you need to design a plan that will help all your employees manage their student debt decisions and improve their financial future.