Roughly 41 million Americans have another three months without federal student loan payments after President Joe Biden on Wednesday once again extended the federal student loan repayment pause, this time for three additional months.
With inflation rising and the easily transmissible Omicron variant leading to a surge in COVID cases, the Biden Administration on Wednesday changed course and extended the pause set to expire at the end of January. Minus another extension, payments are now set to resume on May 1, 2022.
“Now, while our jobs recovery is one of the strongest ever—with nearly six million jobs added this year, the fewest Americans filing for unemployment in more than 50 years, and overall unemployment at 4.2%—we know that millions of student loan borrowers are still coping with the impacts of the pandemic and need some more time before resuming payments,” Biden said in a White House statement Wednesday.
But he also took the opportunity to push for Americans with federal student loans to take advantage of burgeoning workplace student loan repayment programs.
“Look at options to lower your payments through income-based repayment plans”
President Joe Biden
“As we are taking this action, I’m asking all student loan borrowers to do their part as well: take full advantage of the Department of Education’s resources to help you prepare for payments to resume; look at options to lower your payments through income-based repayment plans; explore public service loan forgiveness; and make sure you are vaccinated and boosted when eligible,” Biden said.
Those “income-based repayment plans” he mentioned? That stems in part from Section 2206 of the CARES Act, a provision creating a temporary tax-free provision for employer student loan assistance programs.
Per the provision, an employer can make up to $5,250 in student loan payments for an employee within a year. Whether those payments are made to the employee or directly to the student loan servicer, the money is considered tax-free: the employee doesn’t have to pay income taxes on this money, while the employer also gets a payroll tax exclusion on those funds.
This provision was originally intended to last until December 31, 2020, but was extended through December 2025 under the Consolidated Appropriations Act (CAA), and legislative efforts are underway to make it permanent.
Industry research shows that student loan repayment programs are gaining traction, with the Society for Human Resource Management (SHRM) forecasting earlier this year that one-third of all U.S. employers could be offering some form of student loan repayment assistance program in 2021. In 2019, just 8% of employers offered such a program.
As student loan debt gains attention at the national level, proposed legislation like the SECURE Act 2.0 could provide additional support to borrowers.
This legislation, expected to receive serious consideration on Capitol Hill in 2022, would provide opportunities so employees could both pay off student debt and save for retirement by allowing their employer to contribute to their retirement account in the amount they are paying towards their student loans. This holds the potential to help Americans tackle their student loan payments today without sacrificing retirement contributions that will help with their future.
Recent Fidelity data indicates those with student loan debt are more likely to withhold retirement contributions or take a loan out against their 401k, which can significantly impact their ability to retire comfortably.
This fall Fidelity announced the expansion of its own student loan assistance program for associates.
Americans hold about $1.7 trillion in student loan debt according to Federal Reserve data, and borrowers who graduated in 2019 from public or private nonprofit colleges and universities held on average $28,950 in debt, according to The Institute for College Access and Success.
SEE ALSO:
• Workers Stressed About Looming End of Student Loan Payment Pause
• Surprising Findings on 401k Participant Student Loan Debt
• Student Loan Repayment Benefit Added Under Cares Act