Student Loans and the CARES Act: What to Know
The CARES Act may make it easier for US employees to manage their student loans. Learn how employers help.
As student loan borrowing has skyrocketed in recent years, so has the stress associated with paying off that debt. Four in 10 millennial employees have student loans, with nearly three-quarters saying that those loans have an impact on their ability to meet other goals.1
The coronavirus pandemic has compounded economic stress on student loan borrowers, with 59% reporting increased stress, anxiety, and depression caused by their student loans during the COVID-19 pandemic.2 The student loan provisions in the Coronavirus Aid, Relief and Economic Security (CARES) Act may provide some relief.
Provisions of the law range from suspended student payments on some loans to providing tax incentives for employees whose employers help with loans. Assisting with loans may not be possible for many employers but supporting your workers in understanding how the law does impact them can still be a valuable benefit.
That’s important for millennials borrowers, many of whom, have struggled to build wealth in an adulthood marked by financial challenges. Their economic growing pains have also impacted their parents, typically baby boomers, who may be helping their adult children manage their loan payments—even at the expense of their own retirement savings.
“When we think about student loans, we often think about a younger person, just graduating and new to the workforce,” says Laura Assomull, Head of Financial Wellness Business Development, Morgan Stanley at Work. “But there is a significant amount of student debt being held by those with graduate, or advanced degrees, as well as people who have funded their children’s education. These groups are also impacted.”
There are several ways that you can help:
Understand the Student Loan Provisions of the CARES Act
Student loan relief is just one aspect of the CARES Act, a large piece of legislation passed in March 2020. If your employees have questions, here’s the immediate impact on them:
- Most federal loans have automatically been placed into “administrative forbearance,” which means they can stop making payments, without incurring interest or penalties, until December 31, 2022.3 Borrowers can check to see whether their loans qualify by calling their loan servicer.
- Borrowers who want to continue making payments during the forbearance period can do so. Since the interest rate on loans will remain at zero, any payments will go directly toward reducing principal.
- The CARES Act does not offer relief to borrowers with private student loans, although there are some state programs available.
Take This Opportunity to Offer More Financial Education
Even with the relief provided by the CARES Act, many of your employees likely still face challenges when it comes to student loans, particularly if they (or their children) have large private student loan balances. They may benefit from education or resources around loan consolidation and debt repayment. That can take the form of thought leadership content, webinars or live coaching.
Those employees who can take advantage of CARES Act student loan provisions may be unsure whether they should continue making payments during forbearance or put that freed up cash toward retirement or other financial goals, such as an emergency fund. They can benefit from financial education programs as well.
“Employers do an exceptional job with executive benefits and estate planning for folks with complex financial situations,” says Tom Conlon, Morgan Stanley Head of Retirement Sales. “It’s important to also cater to those folks who are just coming into the workplace for the first time.”
If you offer financial coaching as part of a financial wellness program, directing workers to enlist the help of a coach may be beneficial. Otherwise, you may want to point them to other resources, such as the Consumer Financial Protection Bureau or the Institute for Student Loan Advice.
Consider Helping Employees Pay Their Loans, If You Can
Companies with the available resources can take their support for employees with student loans a step further, providing the additional benefit of student loan payments. The CARES Act allows employers to pay up to $5,250 toward student loans on behalf of employees and the employees would not owe US federal income taxes on the payments. That could make a significant dent in a borrower’s total debt load.
Before the pandemic, only about 4% of employers offered student loan repayment assistance and although in 2020 the percentage doubled to 8,4 in today’s economic environment it may not be financially possible for some employers to provide this benefit. However, there are more cost-efficient methods of support, such as education and coaching that can still go a long way to reducing employee stress.
“When an employer is helping workers improve their financial circumstances, and offering financial wellness, it shows that they care,” says Assomull. “That is powerful, it means a lot, especially at a time like this when there is so much additional stress that everyone is feeling.”
Learn more about Morgan Stanley at Work.