The moratorium on student loan debt payments to the Department of Education will end 60 days after the resolution of the litigation surrounding President Joe Biden’s debt forgiveness program or 60 days after June 30, whichever comes later. When those payments resume, the importance of employee financial wellness programs, especially as they relate to student loan debt management, will come into greater focus.
Edward Gottfried, director of product management at Betterment at Work, says the moratorium on debt payments has created a “false sense of complacency” for employers. Regardless of the Supreme Court’s decision, there will be an “updated push for help with student loan management.” Since any outcome will still leave more than a trillion dollars in outstanding student debt, the end of the moratorium is arguably more meaningful than the debt forgiveness itself.
The timing should also increase the value of the SECURE 2.0 Act of 2022’s student loan matching provision, which is authorized to begin in 2024. Permitting plan participants to receive a 401(k) employer match for making payments on their student loans during important early-saving years could be a great way to attract talent, given debt payments will be at the front of many young workers’ minds, says Gottfried.
Though the survival of the debt cancellation program seems unlikely, based on the questions asked by justices during Tuesday’s oral arguments in two different cases challenging the program, even if the program does survive the review of the Supreme Court, a majority of outstanding student debt will remain outstanding.
Gottfried explains that since many employers already have budget estimates for matching contributions, bringing a student loan match provision online should not be prohibitively expensive for most sponsors. The Biden debt forgiveness program also caps student loan repayment obligations at 5% of monthly income, which is a percentage strikingly similar to the matching contributions that many employers already make. The 5% cap provision was not challenged by the ongoing litigation.
Gottfried adds that more sponsors are monitoring the timing of the moratorium’s end than are tracking the litigation itself. He says the beginning of the first student loan matching programs, which could start as early as four months after the resumption of loan payments—barring another extension—“seems very timely.”