Last month, the Biden administration announced plans to provide financial relief in student loans to people living on low to moderate income (LMI). Once student loan forgiveness and income-based repayment changes are in place, employers and service providers will have the opportunity to boost savings. This is an important step to improve economic stability and reduce racial and gender wealth disparities. Employees whose debt payments have been reduced or eliminated can direct at least a portion of these funds into emergency savings to provide for unexpected expenses. Proven method To improve financial security.
student loan relief plan We have created an opportunity for employers and service providers to influence their employees earning LMI through products and benefits that meet their needs, wants and aspirations.
The Student Debt Relief Plan provides $10,000 for students earning less than $125,000 and $20,000 for eligible undergraduate Pell Grant recipients.Cut your monthly payments in half 65% of borrowers, lowers the payment requirement for income-driven undergraduate loans from 10% to 5% of the borrower’s monthly income. Planning is timely. Federal student loan payments have been suspended since March 2020 to help out student loan borrowers, but the suspension ends December 31, 2022.
Commonwealth and the Retirement Research Center (RRC) of the Defined Contribution Institutional Investment Association (DCIIA) conducted a joint study on the role of emergency savings in retirement savings and the institutionalization of emergency savings through the workplace.
our research Then, plan sponsors and service providers discovered a unique opportunity enhanced by student loan relief plans to support and improve the financial health of employees eligible for student loan forgiveness. Additionally, through increased communications and revised messaging, employers can spotlight the benefits of directing reduced debt service toward providing emergency savings and/or retirement benefits.
Our joint work found that student loan debt for individuals with an LMI is a barrier to emergency savings, and financial health scores are likely to decline as individual student debt levels increase. indicates that is high. Lack of emergency savings barrier to participate in retirement. Like a series of dominoes, student debt affects both short-term and long-term financial stability. actual, American Student Support Survey 62% of employees taking out student loans said they have put off retirement savings.
Female, black, and Latino borrowers are disproportionately affected by student debt.More specifically, women about two-thirds of all U.S. student debt and black and Latino college graduates owe an average of $25,000 more in student loan debt than white college graduates.Latino borrowers are more likely to report delay financial decisions Buy a home or save for a student debt emergency.student loan Strengthen Racial and gender wealth disparities due to disproportionate levels of debt for higher education not necessarily translated Raise wages for black or female workers.
Whether the student debt is completely forgiven or the monthly repayment is reduced, employees can take advantage of their increased disposable income by raising awareness and providing quality emergency savings solutions. I can.For those with lower incomes and lower payments, the Biden administration Estimate Average annual student loan payments will be reduced by more than $1,000 annually for both current and future borrowers.
Diverting it into a liquid emergency savings account may be the most impactful use of these new “saveable” funds. DCIIA RRC and Commonwealth research People with emergency savings have been found to be 70% more likely to pay for retirement. In fact, our previous research found that those with emergency savings at the height of the pandemic less likely to use retirement savings To cover unexpected expenses.
Plan sponsors and recordkeepers are in a unique position to provide support, information and solutions to employees who qualify for other benefits such as student loan debt forgiveness and reduced student loan repayments. 45% of employees This kind of support motivates them to stay with their employer, they say. Providing high-quality emergency savings solutions for employees with new disposable income can protect individuals from the debt cycle and encourage participation in the retirement process. This support has a particular impact on people with LMI, women, black and Latino people. By leveraging debt forgiveness, employers and service providers can influence their workforces and support far-reaching progress in narrowing racial and gender wealth gaps.
Natalie Blain is a senior innovation manager at a national nonprofit. Commonwealth.