When the Public Service Loan Forgiveness (PSLF) program was first introduced in 2007, at first glance it seemed like a pretty sweet deal. Student loan debt holders who worked at either a federal, state or local agency or 501(c)(3) nonprofit for at least 10 years, while making 120 qualifying payments on their student loans during that time, would have the remainder of their debt balance forgiven. You’d have millions of Americans incentivized to enter into public service, while – eventually – freeing them from the financial burdens of their student debt.
But, now that we’re actually 10 years into the program and the first wave of applicants are expecting their loans to be forgiven, we’re seeing that PSFL is not proving to be all it was first cracked up to be. With so few successful accepted applications, it’s clear that the program is not benefitting loan holders as they had hoped.
Consider these numbers from the Department of Education:
Out of nearly 50,000 student loan borrowers who applied, only 420 have been approved and then only half of those have actually had their remaining loans forgiven. Two-hundred out of 50,000. Half of 1 percent.
When your mission statement is to forgive student loan debt after a decade of public service, and your success rate is half of 1 percent, there is clearly room for improvement.
Incentivizing people into public service is a great idea on paper, but it only works if there’s an actual incentive at the end of the tunnel. Compounding the problem is that there isn’t an easy way to determine if you’re even eligible for the program before you devote a decade of your life to it. Applicants can spend years in a public-sector gig only to learn near the end of it that they’re not actually eligible for loan forgiveness. For over 99 percent of Americans who took up PSLF’s offer 10 years ago, nearly all of them are now getting the bait-and-switch treatment.
Communication may be an issue. One of the requirements that applicants may have failed to meet is making 120 qualifying payments over the decade. While the Department of Education’s numbers did not parse out how many of these rejections were due to failing to make that number of payments, the requirement itself raises another hurdle for applicants; it’s not just a decade of public service AND student loan payments during that period that get your balance forgiven, but a specific number of payments over that period, which consequently may end up taking longer than 10 years to make. There’s a communications gap that is evidently creating problems for applicants years later.
For some, PSLF is a great option. For others: buyer beware. Navigating the waters of PSLF is not impossible, but it is challenging and complicated. Vault can help you evaluate all your options and map out upfront all of the potential hurdles of going this route, to help avoid the possibility of any surprises coming your way over 10 years and 120 payments later.
Vault works with your company’s HR team to provide employees with debt-defiant student loan repayment. No tricks, no bait and switch: this is a real workplace benefit that helps you to hire and retain the best talent by contributing to employees’ student loans now, not in 10 years.
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For decades, 401(k) plans have been a staple of workplace benefits programs. Employees are given an outlet to contribute a percentage of their salaries into their retirement nest egg, and to sweeten the deal – and help retain those employees for the long haul – employers will chip in some of their own money into those plans, often matching the employee’s contribution.
Some of the most recent data shows that employers really want their employees to enroll in their 401(k) programs. In 2016, 71 percent of employers said they were likely to either increase or dramatically increase their contributions to employee 401(k) plans. That same year, the average company’s 401(k) matching contribution rose nearly a full point, to 4.7 percent of employee salaries from 3.9 percent the previous year. Major brands like Visa and Aflac have also made waves for how significantly they’ve scaled up their 401(k) match programs, with Visa announcing this year they would increase their match levels by 200 percent, and raise their match limit from 3 percent to 5 percent.
And yet, many employees still aren’t really biting. In 2017, the take-up rate for employees contributing to their 401(k) plans was just 69 percent. That number might sound big on its own, but it also means that 31 percent of employees declined to take up their employers on their 401(k)-match offer. That’s leaving money on the table – and not just small change, either, but collectively around $24 billion! And that adds up on an individual level, coming out to over $1,300 per employee and around $43,000 per plan over 20 years.
At a time when one-third of Americans have less than $5,000 saved for their retirement, why in the world are so many working people essentially walking away from free money to help financially support their post-career lives?
Student loans are a main culprit. The burden of student loan debt in this country has risen to such crippling levels of unaffordability that working- and middle-class people are having to devote more and more of their paychecks to their monthly loan payments over their 401(k) plans. When the choice comes down to today’s student loans or tomorrow’s financial future, for millions of people they’re forced to go with the former.
As citizens of the richest country in the world, millions of Americans, young and old, male and female, of all racial backgrounds, should not be forced to make this trade-off. We should not have to mortgage our futures on trying to make ends meet in the present. And with the IRS’ new ruling allowing employees who are making student loan payments to earn their company’s contribution to their 401(K), those workers can now get back on the path to a steady financial future.
Vault is working hard to make this false choice a thing of the past. By working with employers to help pay down employees’ student loan debts, Vault is empowering employees to become debt defiant, free up their hard-earned dollars for their 401(k) plans rather than their student loans and take back control of their financial futures.
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