In light of the financial hardships many are facing during the COVID-19 pandemic, the federal government is offering student loan relief. Loan payments, interest, and collections have been suspended on loans owned by the Department of Education through September 30, 2021.
Employers are stepping in to help employees pay off student loans, too. That’s good news, as a recent study from The Institute for College Access & Success found that 62% of college seniors graduated with student debt in 2019, adding to the pool of 44.7 million people carrying college debt.
The Society for Human Resource Management also found that 8% of companies offered student loan repayment benefits to employees in 2019, up from 4% in their last survey. This number is expected to continue to skyrocket thanks to a provision in the latest coronavirus stimulus package.
If you need further assistance with your student loan debt, you may want to look into refinancing your private student loans. You can use Credible to compare student loan refinancing rates from multiple lenders at once without affecting your credit score.
How can an employer pay off an employee's student loan?
The CARES Act brought on a wide range of benefits, including a tax incentive for employers who offer educational assistance and help their employees with student loan payments. The act allows employers to make tax-free contributions of up to $5,250 per year toward individual employees’ tuition or student loan payments.
The student loan provision is advantageous for both employers and employees by letting employers avoid payroll taxes and saving employees money on federal income tax. Moreover, employer contributions can go towards the principal loan balance or interest, allowing you to pay off student loans faster and save on interest in the long run.
If you are struggling with private student loan debt, an online tool like Credible can be handy for comparing student loan refinancing rates from multiple lenders.
How long will this benefit last?
The CARES Act originally allowed employers to contribute to employees’ student loan payments between March 27, 2020, and December 31, 2020. But this is now extended through December 31, 2025 thanks to a student loan repayment assistance provision in the Consolidated Appropriations Act passed in late December 2020.
While the canceling student debt and changes to student loan forgiveness are still being debated, this five-year extension signals a bipartisan focus on reducing the burden of student loan debt and bringing employers and the private sector to the forefront of the strategy.
Does this apply to federal or private student loans?
Under both the CARES Act and the Consolidated Appropriations Act, employers are allowed to make tax-free payments on "qualifying education loans." Qualifying education loans are defined as loans taken out solely to pay for higher education expenses. In other words, both federal and private student loans are eligible, as long as you used them explicitly to pay for college.
This differs from the forbearance and interest-free period guaranteed by the government, which only apply to federal student loans.
If you have private loans and need further student loan repayment assistance during the pandemic, check with your lender as some private companies are offering emergency forbearance or temporarily waiving late fees. If you're not satisfied with your lender's options, head to Credible and see if you can get better financial aid or lower rates from other lenders.
Should I refinance my student loans?
Whether your employer is willing to contribute to your student loan payments or not, this is a great time to get ahead on your student loan payments.
If you have federal student loans, you can take advantage of the next several months of interest-free forbearance by paying down your education loans aggressively or saving and investing more. If you have private student loans, now is the perfect time to look into a student loan refinance.
Refinancing rates are at a historic low due to the current financial climate. You can use an online tool like Credible to compare your current rates with rates from multiple lenders at once. That way, you’ll find the lender that offers you the best terms and rates.
A student loan refinance could offer you:
- A lower interest rate
- A shortened repayment term
- A streamlined payment plan
Use an online student loan refinancing calculator to get a sense of what your new monthly payments could be.
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