What Is the CARES Act?
On March 25, 2020, Congress passed The Coronavirus Aid, Relief, and Economic Security (CARES) Act as a response to the economic fallout resulting from the COVID-19 pandemic. The act includes a $2 trillion stimulus bill to help give Americans some financial relief and brings some major changes to how you can help your employees with their student loan debt. For the people struggling with student loans, it takes a little bit of that burden off in a few ways.
What It Means for Student Loan Borrowers
The first thing the CARES Act did was put most student loans into what’s called an administrative forbearance until September 30, 2020. Basically, that means most borrowers don’t have to make any payments toward their student debt until October 2020—and no interest will be accrued from now until then, either.1
With all the uncertainty in the economy right now, that’s a major relief to a lot of people. If they need to, they can take a deep breath and focus solely on taking care of their Four Walls: food, utilities, shelter and transportation.
What It Means for Employers
The second thing the CARES Act did is amend Section 127 of the tax code to change parts of The Employer Participation in Repayment Act. Before the amendment, employees had to pay income tax on their employer’s student loan program contributions. But not anymore! Now, employers can contribute up to $5,250 per employee per year through these programs—and it’s tax-free to the employee.2 The change is effective through the end of 2020, but it’s widely believed that it will continue in 2021 and beyond.
These programs work a little like the company 401(k) match, but instead of that money going toward the employee’s retirement, it helps knock out their outstanding student loan debt. The employee continues to make their student loan payments, and matching funds from their employer means they pay off their debt faster. It’s a win-win.
Thanks to this shift, the CARES Act has boosted student loan employer programs and helped pave the way to eliminate hundreds of billions in student loan debt in just a few years. We love seeing employers pitch in to help their employees like this! But remember, these kinds of plans only scratch the surface of the real problem of financial wellness. You’ve got to look at the bigger picture to truly help your team.
1. United States Congress, 2020
2. United States Congress, 2020