The CARES Act and the forgiveness of student loans
About 42 million Americans have federal student loans, collectively owing $ 1.73 trillion. With the end of the CARES Act on January 31, borrowers will face increasing financial pressure as monthly payments resume.
In March 2020, Congress passed the CARES Act, not only suspending payments, but setting interest rates on student loans at 0% and halting collection of delinquent student loans. The Department of Education estimates that this policy has saved borrowers up to $ 4.8 billion per month in accrued interest.
But at the end of this relief period, many workers – especially those in traditionally lower-paying jobs in the nonprofit and public sectors – turn to employers for help. According to the financial services organization TIAA, 60% of those polled believed their employer was responsible for helping them pay off their student loans.
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“Our survey tells us that almost 95% of employees in the public and nonprofit sector will have at least some difficulty keeping up with the pace of student loan repayments,” said Snezana Zlatar, senior managing director and welfare officer. finance, advice and innovation at TIAA. “People feel frustrated – they feel fearful, hopeless, angry, and even ashamed of the burden they are carrying.”
TIAA found that 85% of those polled said loan debt was a source of stress, and almost half said they needed to make a major life change, like putting a stop to buying a home. , due to continued loan repayments. Due to these financial difficulties, student debt has an impact on employees’ relationships with their personal and professional lives, Zlatar explains.
“One-third of respondents told us they were considering a career change, from a job in the public or nonprofit sector to a higher paying job,” she says. “It may be difficult, if not impossible, to pay off student debt without the CARES Act relief in the past.”
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Zlatar sees the end of the CARES law as an opportunity for employers to scale up and support their workforce. One effective way to do this is to help employees apply for loan forgiveness. TIAA has partnered with social impact tech startup Savi to help employees of nonprofits and the public sector manage their student loans, with a focus on the function’s loan forgiveness program. public. Their services will be offered as a voluntary benefit provided by the employer.
However, the PSLF program is notoriously difficult to apply, with 98% of applicants rejected for not meeting requirements or having missing information. Savi can help employees determine if they are eligible for the program, as well as ensure applicants meet PSLF requirements and meet deadlines.
“By taking advantage of the Public Service Loan Forgiveness Program, individuals can then redirect their savings to major goals in their lives, such as buying a home or retiring,” Zlatar explains. “It’s really important that employers and employees explore this avenue. “
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TIAA and Savi claimed to have already obtained $ 200 million loan cancellation, or more than $ 50,000 per applicant after successfully completing the PSLF program. However, this program only applies to individuals employed by a U.S. federal, state, local, or tribal government or nonprofit organization. In addition, they must work full time, have an income-based repayment plan, and make at least 120 consecutive loan payments.
Zlatar also recommends that employers consider contributing to employee student loans while connecting them to educational sources on student loan management.
“We would like to encourage employers to seize the opportunity to help their employees in innovative ways,” Zlatar said. “And the student loan assistance will be of huge benefit to employees and employers.”