Betterment at Work GM weighs in on Biden's forgiveness plan
More than 45 million Americans breathed a sigh of relief on Wednesday, as President Joe Biden announced a plan to tackle the national student debt crisis.
Biden is directing the Department of Education to cancel $10,000 in federal student loan debt per borrower, for those making less than $125,000 annually. Meanwhile, recipients of Pell Grants, awarded only to undergraduate students who display exceptional financial need, will see up to $20,000 wiped out. According to The White House, this historic initiative will assist up to 43 million borrowers, including eliminating the full remaining balance for roughly 20 million borrowers.
Nearly 90% of relief dollars will go to those earning less than $75,000 a year, the Department of Education estimates.
In addition, Biden has extended the payment freeze, which began at the dawn of the COVID-19 pandemic, “one final time” through Dec. 31, 2022. Since March 2020, accrual of interest on federal student loans has also been paused under former President Donald Trump’s order.
“In spite of the excellent news, we can’t lose sight of the fact that there will still be significant amounts of outstanding student loan debt across the country,” Kristen Carlisle, general manager at Betterment at Work, told HRD. Betterment at Work is a 401(k) plan leveraged by New York City-based Betterment’s retail investment platform, which boasts more than 730,000 customers.
“As conversations around the debt landscape have evolved and more attention has been paid to the significant financial and emotional toll of student debt, employers have begun to take a closer look and think through solutions for their employees,” Carlisle says.
More than half of employees (57%) believe their employers should play a role in helping them pay down their student debt, whether that’s via direct financial support or offering digital tools or advisors to help guide them through the process, according to a Betterment survey conducted last year.
HR leaders are taking notice. Student loan repayment assistance is the second most popular benefit (behind financial wellness) employers are looking to add in the coming years, according to the 2021 SmartDollar Financial Wellness Benefits Study by Ramsey Solutions – spearheaded by New York Times best-selling author and financial guru Dave Ramsey.
“We’re increasingly hearing from others in the industry that businesses are beginning to match employee contributions to their student loans, a cutting-edge benefit that we expect to increase in popularity to help employees combat this difficult financial burden,” Carlisle says.
In keeping with my campaign promise, my Administration is announcing a plan to give working and middle class families breathing room as they prepare to resume federal student loan payments in January 2023.— President Biden (@POTUS) August 24, 2022
I'll have more details this afternoon. pic.twitter.com/kuZNqoMe4I
Tuition reimbursements are also on the rise, as companies compete for talent during the Great Resignation. Employees have been leaving their positions for greener pastures, demanding higher salaries, better working conditions, improved work/life balance and more opportunities to advance their career. With the scales tipped in favor of labor, most employers are having to increase their compensation and benefits packages beyond the traditional health care, dental, vision and 401(k) offers. Tuition reimbursement, especially for millennials and Gen Z, can be the difference maker.
Through 2025, employers can continue to make contributions of up to $5,250 per employee annually toward eligible education expenses without raising the employee's gross taxable income under Section 127 of the Internal Revenue Code. California companies offering tuition reimbursement to employees include Apple, Chipotle, Wells Fargo, The Walt Disney Company, Gap, Taco Bell and more.
“As this continues to be a focus on Capitol Hill, I anticipate we will see more movement to enable employers to offer student loan support benefits rather than a complete erasure of debt altogether. This may look like tax incentives for business owners, which is already in consideration as it relates to enhanced benefits packages.”
Announced on Wednesday, the Department of Education is proposing a rule that would reduce future monthly payments for lower- and middle-income borrowers from 10% to 5% of discretionary income. Interest would be limited under the rule, so a borrower’s loan balance wouldn’t increase as long as they are making their required monthly payments. The rule would also forgive loan balances after 10 years of payments rather than the current 20 year-threshold that many income-driven repayment plans follow.
Additionally, the Department of Education is proposing a rule that would allow more payments to qualify for the Public Service Loan Forgiveness (PSLF) program, which benefits government employees and those who work for certain types of nonprofit organizations.
Under the Biden administration, more than $31 billion in student loan relief has already been issued for hundreds of thousands of borrowers, The Hill reported. However, the forgiveness has only applied to borrowers with disabilities, those participating in the PSLF program and those who have attended schools that misled students.
According to The White House, the country’s outstanding student loan debt balance exceeds $1.6 trillion.