An Opportunity for Both Student Debtholders and Employers | Deloitte US has been saved
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The Coronavirus Aid, Relief, and Economic Security (CARES) Act—passed in late March—provides a sweeping $2.2 trillion emergency relief bill for businesses and individuals affected by the coronavirus pandemic in the United States.1
Among the headlines, the bill offers up to $1,200 immediate cash payments to most individuals earning less than $75,000 (or $2,400 for couples filing jointly and earning less than $198,000), plus an additional $500 per child. The bill also expands unemployment benefits to include independent contractors, gig workers, and the self-employed while increasing the duration of unemployment benefits. Additionally, the bill provides $500 billion to the Treasury Department’s Exchange Stabilization Fund (ESF) for distressed industries and authorizes the Federal Reserve to provide approximately four trillion in direct aid to various industries and local governments.2
Beneath the headlines are two provisions that will be of great interest to the 40-plus million Americans who owe more than $1.6 trillion in student loan debt since the end of 2019.3
One provision permits individuals to defer their student loan payments for six months without accruing interest or penalties and suspends involuntary collections (i.e., wage garnishment or tax refund reduction) of student debt. Notably, this provision applies to only individuals with federal student loans and not the less than 10 percent of student debt holders4 whose loans have been refinanced or originated with private lenders.5
Another provision applies to student loan payments made on behalf of an employee by their employer, which only a small subset of employers currently offer. One likely reason for this limited prevalence is that such payments are typically included in an employee’s taxable income.6 The CARES Act amends Internal Revenue Code (IRC) section 127(c) to provide a gross income exclusion for employer payments toward an employee’s student loans, but only for payments made before January 1, 2021. This means that an employer could pay up to $5,250 toward an employee’s student loans this year on a tax-free basis (assuming no other 127(c) benefits are provided).
Some employers already offering student debt repayment support to their employees could take advantage of this temporary tax relief by increasing the amount or frequency of their contributions in the short term. Going further, employers who have remained on the sidelines of the student debt issue to date could seize the opportunity to differentiate their rewards offerings and establish programs for the first time, offering greater value to employees. While this may seem optimistic given current economic conditions, if an organization’s specific context allows for such an investment at this time, it would send a strong positive message to current and prospective employees.
Some employers in fact are offering, or are considering offering, “COVID bonuses” to their employees. These special discretionary payments are intended to help employees cope with unexpected expenses and, in some cases, reward employees on the front lines whose work lives have been dramatically complicated by the virus.7 Employers could take advantage of this special opportunity to provide similar value to employees with student loan debt on a tax-preferred basis.
In this scenario, employees could use any student debt payments from their employer to chip away at their loan balances while keeping up with their own payment schedule. Or, they could pause or reduce their own payments without penalty or interest (through the end of September 2020) based on the other related CARES provisions while still making debt-reduction progress via the employer payment. If employees chose to reduce their own payments by the exact amount of the employer payment, they would make the same amount of progress paying down the loan but have more cash to spend on other things as they navigate the current crisis.
It remains to be seen whether the student debt provisions of the CARES Act will be extended or if other long-debated legislative measures to address the student debt crisis will come to fruition. In the meantime, the CARES Act presents a unique opportunity to directly address the financial wellbeing during a trying time and offers a way to add a layer of personalization to their rewards programs.
Bersin members may access a series of student debt articles here on our platform. An upcoming installment in the series will address public policy dimensions of the student debt crisis.
Peter DeBellis is a vice president and the total rewards research leader at Deloitte Consulting LLP.
1Congress.gov, “S.3548 – CARES Act,” Accessed April 30, 2020
2Congress.gov, “S.3548 – CARES Act,” Accessed April 30, 2020.
3US Federal Reserve, G.19 Consumer Credit statistical release, “Consumer Credit Outstanding Levels,” April 7, 2020.
4MeasureOne.com, “Academic Lending Study.” Accessed April 15, 2020.
5US Department of Education, “Coronavirus and Forbearance Info for Students, Borrowers, and Parents,” Accessed April 30, 2020.
6Student Loan Debt: Rewards Practices to Help Ease Employee Debt Burdens and Enhance Business Results, Deloitte Consulting LLP/Pete DeBellis, 2018.
7“Compensation in Crisis,” Practical Measures Organizations Can Take to Ensure Stability Amid COVID-19,” WorldatWork.org/Jeremy Spake, April 6, 2020.
Pete leads total rewards research for Deloitte. Pete has a deep understanding of the various tools organizations use to attract, motivate, develop, and retain talent—from compensation and benefits to worker wellbeing programs to experience and actualization opportunities, among others. His experience, gained as in-house rewards professional for public companies and as a consultant, helps him understand the critical linkages between total rewards, human resource strategy, and overarching business objectives. Pete holds a Bachelor of Science in industrial and labor relations from Cornell University.