What Employers Should Consider With Upcoming Student Loan Relief
The Biden Administration announcement several student debt relief measures on August 24, 2022, including an extended moratorium on loan repayment until December 31, 2022 and debt cancellation which will be available towards the end of the year. Pell Grant recipients will receive $20,000 in student loan forgiveness. Other borrowers are eligible for $10,000 in student loan debt forgiveness, if they earn $125,000 or less ($250,000 or less for married filers and heads of household). In light of these changes, employers may want to consider reassessing the benefits of their existing educational assistance program.
Future relief measures proposed by the Biden administration included a new revenue-based repayment program and a restriction on unpaid interest. Under these proposals, borrowers who have paid off loans for ten years and have a remaining balance of $12,000 or less would qualify for a forgiveness at that time. Currently, borrowers are only eligible for forgiveness after twenty years of repayment. The proposal would also limit accrued interest for borrowers who make monthly payments, so the total loan amount would actually be reduced by repayments. Borrowers earning less than 225% of the federal poverty level (that is, earning about the federal minimum wage) would be exempt from repayment and accrued interest.
Therefore, now is a good time for employers to consider reviewing all of the Education Assistance Program benefits that are currently offered, and any corresponding changes for the coming year. The rules of the education assistance program have undergone some changes in recent years. In a private decision in 2018, the Internal Revenue Service (IRS) allowed employers to tie 401(k) plan matching contributions to employees’ student loan repayments. bill, the Securing a strong 2022 retirement law (HR 2954), often referred to as “SECURE Act 2.0”, has been passed by the US House of Representatives and is pending review by the US Senate and contains a similar mechanism. Additionally, in 2020, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) allowed employees to exclude from income up to $5,250 if their employers made interest or principal payments on loans. eligible students through educational assistance programs that meet the requirements of Section 127 of the Internal Revenue Code. The Consolidated Appropriations Act, 2021 extended this exclusion until December 31, 2025.
Employers may consider building flexibility into their education assistance programs and any matching contributions offered by coordinating such a program and a 401(k) plan benefit. While the Biden administration’s announcement refers to the repayment moratorium ending Dec. 31, 2022, as a “permanent” extension, the status of federal student loan repayments has been uncertain during the years of the national emergency. COVID-19. Additionally, if the proposed measures go into effect, more people will be eligible for $0 monthly income-based payments in the future. Finally, employers who do not currently offer education assistance programs may consider adding one by January 1, 2023, as the priorities of many borrowers will then shift from saving for retirement to paying off loans. students.
© 2022, Ogletree, Deakins, Nash, Smoak & Stewart, PC, All rights reserved.National Law Review, Volume XII, Number 259