Benefits of a Student Loan Repayment Program under the 2021 CARES Act provision Employees and Sole Proprietors get $20K

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Employers can act now and take advantage of this limited-time chance to help their employees reduce their student loan debt up to $5,250 per year through an updated provision of the CARES Act[i]. ?Let’s break down the details of the law, who is eligible to participate, the current state of US student loan debt, how this opportunity can be an asset in talent acquisition and retention, and what your company needs to do to get this set up quickly before the offer ends January 1, 2026!

This is a win-win situation for employers and employees alike!

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5 Reasons Why Your Company Should Adopt a Student Loan Repayment Program

1. Retain current employees by demonstrating you care about their financial health
2. Improve employee engagement and productivity by reducing
3. Gain a competitive edge in Talent Acquisition and Recruiting
4. Advance opportunities for women and BIPOC employees who hold the highest debt
5. It’s a tax deductible for the employer and tax-free for the employee until January 1, 2026

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Details of the Updated Provision to the CARES Act

The most?recent Coronavirus Aid Relief and Economic Security Act (the CARES Act ), attached to the Consolidated Appropriations Act 2021, approved December 21, 2020, now provides a way for employers to help repay employee student loans, with tax benefits for both the employer and the employee.

What has changed includes a modification to?Section 127 of the IRS Code, previously it?only allowed an employer to pay or reimburse tuition and other qualified educational expenses incurred while the employee is with that employer. Now it gives employers a chance to pay up to $5,250 per year to repay employee student loans any time the loan incurred, and it does not need to be related to the employee’s current position. The best part is the amount paid is tax-free to employees and tax-deductible for the employer. [ii]

?Which Employers and Employees are Eligible?

Employees

All current, retired, and laid-off employees. Repayment dollars are applied toward principal or interest on any qualified education loan that is held by the federal government.

?Employers

For-profit and not-for-profit organizations that have adopted a qualified Education Assistance Program. It must be noted that this includes sole proprietors and partnerships-both groups are allowed to claim themselves as employees under this provision.

?The State of Employee Student Loan Debt

One in eight people in the United States hold an average amount of $30,000 student debt[iii]. And that is not only new graduates, high repayment schedules financially impact people across all generations including those heading toward retirement.[iv] ?The amount of debt also disproportionately impacts women and BIPOC. ?While women hold nearly 2/3 of the $1.75 trillion in total student loan debt (including federal and private loans)[v], federal data shows that black and brown borrowers hold the greatest average of debt. Black women carrying the highest burden overall with holding nearly $8,000 more than the typical borrower.[vi]

?A Valuable Tool for Talent Acquisition and Retention

In a 2017 survey conducted by the American Student Assistance (ASA)[vii] of 500 employees it was highlighted that student loan debt negatively impacts their focus at work, desire to pursue additional education, retirement planning, and their overall mental health and wellbeing. More than half of the workers surveyed said they worry about student loan debt most or all the time. Nearly 65 percent said they may seek a second job to help pay off their loans.

It is well known to people managers that when employees are stressed and worried, they are less productive. Financially secure employees come to work happier, more motivated and engaged which naturally contributes to fostering an innovative and profitable environment.

In 2023 we are going to witness a massive shift in Total Rewards Strategies that will include Student Loan Repayment Programs. According to a 2018 study by Willis Towers Watson, employers contributing to student loan repayment were projected to grow from 4 percent in 2018 to 32 percent by 2021. While those percentages initially fell a bit short, they are now on the rise. More recent findings from an October 2021 survey by the Employee Benefit Research Institute[viii]?emphasized that 17 percent of US employers currently offered student loan debt assistance and another 31 percent plan to do so. While doubling the number of companies offering this benefit is significant, it still leaves a great deal of room for employers to stand-out and gain a competitive edge in talent acquisition while also increasing their own retention rates.

Post-pandemic employees want to work for companies that care about their health; physical, mental, and financial. ?The previously mentioned ASA survey found that 86 percent of employees would commit to a company for five years if the employer helped pay back their student loans.

?A great example of a successful education assistance plan is Fidelity Investments[ix]. After adopting their Student Loan Repayment Program, they found that attrition rates among employees participating were 75 percent lower than their total employee population. Among new hires, half said that the student loan repayment benefit was a major factor in their decision to join the company.

As a long time, SHRM-SCP Certified Member and SHRM Government Advocacy Captain, I must include that, “the Society for Human Resource Management (SHRM) supports permanently expanding the tax exclusion for employer-provided education assistance to include student loan repayment”. SHRM’s President and CEO has said "Expanding employer education assistance helps address the skills gap, which is holding back both workers and employers. When employers are able to help workers pay off student debt, more people will have confidence to pursue higher education and be better prepared to fill high-skilled fields."[x]

What do Companies Need to Do Get Started

The CARES Act employer-based student loan relief is provided through the employer’s Section 127 Educational Assistance Program (EAP)[xi], which is established with “a separate written plan of an employer for the exclusive benefit of their employees to provide such employees with educational assistance.”

EAP Plans must include

• The program benefits employees who qualify, under rules set up by you, that don't favor highly compensated employees.
• The program doesn't provide more than 5% of its benefits during the year for shareholders or owners (or their spouses or dependents). A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business.
• The program doesn't allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance.

You give reasonable notice of the program to eligible employees.

Additional considerations include how funds are distributed and internal eligibility rules e.g., 90 days after the hire date. Employers have options with payments too, they can add them directly to the employee’s paycheck or submit them to lender.

It's important to note that on August 31st 2022[xii] the moratorium on Student Loan Repayments will end for 45 million people, that means that nearly 20% of the US population[xiii] will resume paying down their student debt. This makes it even more urgent for employers to take advantage of the relief the government is offering. If your employer has already missed 2020 and 2021, they have an opportunity to adopt a plan for 2022, 2023, 2024, 2025, that’s over $20K per employee still available.

For a CARES Act Student Loan Repayment Program Guide complete with plan templates, custom designed programs, and guided implementation visit www.kennedyglobalhr.com/studentloanrepayment.com for Employers, Employees, and Sole-Proprietors.

Kennedy Global HR LLC. is in the Chicago, IL region and serves all size organizations including sole proprietors, partnerships, nonprofits, SME, and multi-national corporations.

[i] https://www.earnest.com/blog/women-student-debt/.

[ii] https://www.aau.edu/key-issues/employer-provided-educational-assistance-benefits

[iii] https://www.nerdwallet.com/article/loans/student-loans/how-many-americans-have-student-loan-debt

[iv] Sources: Federal Reserve, The Institute for College Access and Success

[v] https://www.earnest.com/blog/women-student-debt/

[vi] https://iwpr.org/media/in-the-lead/student-debt-is-a-crisis-for-women-and-black-women-bear-the-greatest-burden/

[vii] https://www.businesswire.com/news/home/20170228005492/en/New-Survey-Reveals-Burden-Student-Debt-Young

[viii] https://www.ebri.org/docs/default-source/ebri-issue-brief/ebri_ib_544_fwes2021-28oct21.pdf?sfvrsn=51443b2f_4

[ix] https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/will-student-loan-repayment-at-long-last-be-a-game-changer.aspx

[x] https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/pass-tax-relief-for-student-loan-repayment-benefits-shrm-says.aspx

[xi] https://uscode.house.gov/view.xhtml?req=(title:26%20section:127%20edition:prelim)

[xii] https://www.whitehouse.gov/briefing-room/statements-releases/2022/04/06/statement-by-president-biden-extending-the-pause-on-student-loan-repayment-through-august-31st-2022/

[xiii] https://www.forbes.com/sites/civicnation/2022/05/20/supporting-students-postsecondary-success-amid-pandemic-interruptions/?sh=7f8bdfe434c6