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As Americans saddled with student loan debt prepare to make monthly payments to reboot and recover from the pain of the recent Supreme Court ruling against loan forgiveness, some groups are looking at the workplace as a firewall for aid to borrowers.
According to a June 30 report, SHRM, a group representing human resource professionals, called on Congress and state legislatures to “pass policies that support employees and employers.” statement The release came after the Supreme Court struck down the Biden administration’s debt cancellation plan.
Specifically, they want to provide a larger tax break for workplace education benefits and consolidate a tax policy that is expected to end within a few years. Proponents argue the tweak would help put education on a more equal footing with key benefits of retirement and health care, with tax breaks for employers.
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SHRM also called on businesses to “support staff in addressing the student debt challenge”. Debt payments, suspended for more than three years, are due to restart in October.
Cody Hunanian, executive director of the Center on the Student Debt Crisis, said he wasn’t surprised by the “all-out approach” given the current environment for borrowers, which he called “leading to a catastrophic situation.” .
Few employers offer student loan benefits, which can take many forms.
17% of students offer some type of student loan assistance, according to a 2021 survey poll by the Employee Benefits Institute. Another 31 percent planned to provide some type of assistance in the next year or two, the survey found.
The most popular workplace programs don’t offer direct student loan forgiveness.
For example, about four in 10 employers provide assistance through contributions to borrowers’ 401(k) accounts that pay off student debt.
There are two other popular avenues: debt payment counseling or education, and the opportunity to award 401(k) loans — essentially allowing employees to borrow with retirement savings to pay off student debt.
“It seems like retirement saving is the norm here,” said Will Hansen, executive director of the Plan Sponsors Council of America, which represents employers who offer workplace retirement plans. “We’re now being used as a tool to assist with other financial habits, from student loans to emergency savings.”
Many workers, especially younger workers, prefer student loan payment assistance over more traditional benefits like 401(k) matching, according to the Lending Tree survey.
More than half (54%) of workers aged 18 to 24 hold this view. According to statistics, this proportion drops to 45% for 25 to 34 year olds and 39% for 55 to 64 year olds. pollingconducted in 2016.
Derek Johnson, president and CEO of the NAACP, said there should be a “temptation” related to student loans in employee compensation packages, which he called “a personal crisis for too many Americans.” .
“Just like 401(k)s and health benefits, there should be some type of assistance and support for employees to get out of this debt,” Johnson said. “The business community has a responsibility to step up and provide this level of support,” he added.
Of course, the best policy path would be for lawmakers to provide financial assistance directly to student loan borrowers, rather than through workplace tax breaks, he added.
Valuable tax break for borrowers ends in 2026
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Experts say some of the most valuable workplace benefits were created by the CARES Pandemic Relief Act of March 2020.
The law expands the existing educational aid tax deduction by adding student loan repayments as qualified educational expenses. This expansion of Section 127 of the tax code allows employers to pay up to $5,250 per year in student loan payments for workers. These payments are tax-free for employees and businesses.
About 8 percent of companies offer student loan repayment plans, according to SHRM. In contrast, 48 percent provide tuition assistance to students in undergraduate or graduate school.
However, the expansion of the student loan tax break is temporary. If Congress does not act, the bill ends in 2026.
SHRM called on lawmakers to make the tax break permanent. It also called for an increase in the annual limit on tax-free payments.
The American Federation of Teachers, a union, also wants to extend the tax break, a spokesman said.
“We have negotiated tax-exempt employer-fee assistance at several health care affiliates in Albuquerque, New Mexico, as well as in Washington state,” AFT President Randi Weingarten said in an emailed statement. “We are making these recommendations elsewhere, including in Orange County, Florida.”
From 2024, employers can also pay The 401(k) matches borrowers with student loan payments, a provision enacted by a 2022 law called Secure 2.0. Student debt payments are essentially considered 401(k) contributions, making borrowers eligible for a match.
About 2 percent of employers who initiate a 401(k) plan intend to implement the policy, while another 9 percent are likely to add or consider it, according to a poll by the Council of American Plan Sponsors. Twenty-two percent were unsure.
Tool retention or alienation policy?
Advocates for more student loan assistance in the workplace say that in addition to helping workers with financial stress (and ultimately making them more productive), such policies can help retain workers.
That could be useful for the labor market, as job openings have surged to record highs during the pandemic. Still high, employers may experience hiring difficulties.
“With such a tight labor market, companies want to get creative with benefits to attract top talent,” Hansen said.
But there is a tension here: Experts say such programs will appeal to some employers and workforces over others.
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Fred Reish, a partner and retirement-planning expert at law firm Faegre Drinker Biddle & Reath, said professional firms and others that employ large numbers of college graduates are likely to adopt the new 401(k) matching provisions sooner.
“It will convey concern for the interests of these employees and an acknowledgment of their situation,” he said. wrote. “On the other hand, companies that primarily employ blue-collar workers may see no need to add this provision to their plans and avoid the administrative complexities that result.”
Given this division, Johnson said, individuals with the highest student debt burdens may not be able to receive any student loan-related benefits at work.
In addition, Lisa Porro, a human resources consultant at Inspiring HR, said creating a plan could “create resentment” among workers without student loans, which “could divide the workforce and create morale issues.” wrote In a review article in SHRM last year.
“Workers in jobs that don’t require a college degree won’t get help,” Polo said. “Also, not all workers can go to college before starting their careers; some succeed through experience and industry knowledge.”