How America’s Student Debt Crisis Affects The Country’s Largest Corporations
With the rise of millennials and Generation Z grads, the workforce is rapidly changing. Young, educated professionals bring a lot to employers for sure—like energy, enthusiasm, and a thirst for innovation. But these days, they also come with some financial baggage: high levels of student loan debt. That debt can be crippling and distracting, and on top of that, it’s also an obstruction to both short- and long-term financial goals.
It’s no secret that organizations directly feel the impact of the hardship. According to PricewaterhouseCoopers’ (PwC) 2016 Employee Financial Wellness Report, 28% of 1,600 full-time U.S. employees surveyed admit that personal finances cause them to be distracted at work—up from 20% in 2015. Among those workers, 46% spend three or more hours a week, while at work, dealing with or thinking about their financial situations, compared to 37% in the previous year. Yet few HR teams are taking steps to address the problem effectively and help their employees—and their company’s ROI.
In this first part of our new series on employee wellness, recruitment, and engagement, we at SoFi want to provide actionable insights on how to better understand the financial burden of student loan debt that these employees face, and what to do to help ease the pressure through financial assistance, education, training, and support.
Graduates face staggering debt, despite federal efforts
The history of student loan programs is long and turbulent. A point worth calling attention to is the Higher Education Act of 1965, which increased federal funding to universities. The act leveled the education playing field so students from lower- and middle-income families could get the funds needed to pursue degrees. The good news was that college became more affordable thanks to student loan assistance, which meant college and grad school attendance rose. The bad news? So did costs.
In fact, the cost of college has skyrocketed over the past several decades. According to College Board data, average undergrad tuition for private, nonprofit four-year schools has risen from $10,680 in the 1976-1977 academic year to $33,480 in the current academic year. The average cost of public four-year schools has climbed from $2,600 to $9,650 a year in the same amount of time. Add room and board costs on top of that, and the financial hit is even more striking.
As far as relief goes, the federal government currently has a number of programs in place under the umbrella of income-driven repayment plans. Additionally, the public service loan forgiveness program absolves balances for those who meet various criteria, such as those working for non-profits or the government, who can have their loans forgiven after 10 years with no tax penalty.
Moving forward, the Trump administration has promised to take steps to address the crisis, but nothing has been set in stone yet.
The takeaway? Despite past and present federal efforts, Marketwatch’s national student debt clock shows that 40 million Americans carry a total of over $1.4 trillion in student loan debt today—and that number grows by $2,725 every second. In 2016, graduates walked away with an average $37,172 in student loan debt—a 6% increase from the prior year. It’s no wonder that grads entering the workforce feel the strain on their job performance and personal well-being. That kind of financial pressure would affect anyone.
Financial stress hurts individuals and organizations
Financial stress in America is at its highest point in the past five years. PwC also found that 52% of employees surveyed are stressed about finances, and for 45%, that stress has increased over the previous 12 months. Young workers particularly feel the heat. While 42% of millennial respondents indicated that they carry student loan debt, a whopping 79% of them said their loans have moderate or significant impact on their ability to meet other financial obligations.
For HR professionals, the PwC survey yields additional findings, including that 44% of respondents indicated they don’t believe their individual employers care about their financial well-being. In an increasingly competitive job market, that’s a stat well worth paying attention to.
Just like physical wellness, financial wellness is a critical attribute of a fully functioning workforce, as it can have a positive impact on productivity, decrease absenteeism, and even improve overall health. In our 2016 Impact of Student Loan Benefits report, based on a survey of 1,000 U.S. working professionals, 94% of respondents said that employer student loan assistance would be likely to cause them to stay at a company longer; 90% indicated such a benefit would make them more likely to accept a job offer.
How HR can help
While the student loan crisis is top of mind for many employees, it’s not yet an issue on the radar screens of most companies. While employer student loan repayment assistance has been called the “hottest employee benefit of 2017,” only 4% of employers currently offer this benefit. And that represents quite an opportunity for HR, especially if the workforce includes a high volume of employees with advanced degrees. The more MBA grads you employ, for example, the higher the possibility of financial stress due to large amounts of student loan debt.
Student loan refinancing and student loan contribution programs, such as SoFi at Work, can help you boost recruitment, reduce turnover, and build financial wellness at your company. Our unique employee benefits program relieves the burden on HR with ready-made options designed for today’s workforce.
In addition to providing assistance with loan repayment, HR professionals can help employees in other ways by providing the following:
– Education and training for managers to help them understand the impact that debt and financial uncertainty can have on employees
– Financial assistance and counseling
– Services to help assess and work through the stress of financial challenges
– Flexible benefits that focus on work/life balance to help employees choose among options that best meet their individual needs
Widespread student loan debt will continue to present challenges to employees in the years to come. But the crisis presents a unique opportunity for organizations to step in and help shape the financial well-being of their workforce—which, in the end, is impactful for a company’s bottom line, too.
What types of conversations are taking place in your organization around this issue, and what are you doing to address employee concerns? Discover how your organization can address the impact of student loan debt on employee satisfaction, productivity, engagement, and loyalty through programs such as SoFi at Work, and share this article with other HR professionals interested in making a difference at their companies.