Companies Cutting 401(k) Contributions
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Here's your Money Briefing for Thursday, April 2nd. I'm J.R. Whalen for The Wall Street Journal. The coronavirus pandemic has a lot of companies scrambling to find ways to conserve cash. One place some of them are looking is retirement plans. Many are temporarily reducing the matching funds that contribute to employees' 401k plans. Retirement reporter Ann Tergesen will be along in a moment with some details. But first, today's installment in our week-long look at the government's coronavirus stimulus package. Two trillion dollars in you. Student loans. The typical family spends about $180 a month to pay down education debt, and the stimulus will give those borrowers a bit of a relief. Wall Street Journal reporter Josh Mitchell has more.
So Josh, what does the stimulus plan do for people with student loans to pay down?
Most people who have federal student loans will not have to make any payments whatsoever for the next six months. If you normally pay $200 a month toward your student loans, some people pay $800. That's now money that they can save up or they can spend elsewhere. So this is really a big deal for a lot of people with student loans. This is through September 30. It's about six months. There will be no interest. So basically what's going to happen, and this comes from the Education Department, your loans will be put on hold. They will freeze. According to what they've told me, you don't even have to do anything. They are telling the servicers to stop collecting payments. They go into this category called forbearance.
And again, the loans just sit there. Interest does not accrue. And then after six months, your balance of whatever it is today will be the exact same as it is, will still be the same.
What immediate relief does the $2 trillion stimulus offer for federal student loan borrowers?
So which loans qualify for this and which don't?
First of all, most loans do. Most of the federal loans will be able to take advantage of this. If you have strictly private loans where there's not a federal guarantee, those do not qualify under this program.
Now, in some cases, would this wind up forgiving a portion of debt for some borrowers?
You know, when the stimulus talks were going on last week, the Democrats wanted to just outright cut everyone's loan balance by $10,000 or even more. And they did not get their way. The final stimulus bill does not include a quote-unquote forgiveness provision. That being said, a lot of people are enrolled in what you could call forgiveness programs. Let's just use the so-called public service loan forgiveness program as an example. Well, so even though the law doesn't say your balance will go down, basically your six months of nonpayments will actually count toward – the number of payments that you need to make to eventually have your loans discharged. So PSLF, public service loan forgiveness, you need to make 120 months of payments.
That's about 10 years of payments in order to get your balance discharged. Well, the next six months, even though you won't be paying a dime, those will count toward those 120 payments. So let's say you normally pay $1,000 a month in public service loan forgiveness. You basically get $6,000 forgiven in a sense because you don't have to pay that down.
How does the stimulus bill make it easier for employers to pay down their workers' student loans?
There's this other provision that found its way in there. This has been a very big priority of a number of employers as well as many activists in the Democratic Party to basically allow employers to contribute toward their employees' student loans. while not having that contribution taxed as ordinary income. Up until now, if you were an employer and you wanted to give, let's just say you wanted to contribute $5,000 toward paying down your employee's student loan, well, that $5,000 would be counted as income so that when you filed your taxes, you would have to pay income tax on that. also payroll taxes would apply to it. Now, that will no longer be the case through the end of the year.
How long will student loan payments be suspended and will interest continue to accrue?
So if your employer opts to do so, your employer can now pay $5,250 toward paying down your student loan.
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