Student Loan Debt Crisis: What Employers Can Do to Help
If you’re wondering how much student debt is weighing on your workforce, consider this: A SoFi at Work Financial Well-Being poll found that roughly half of employees would choose to get their student loans paid off over an extra month of vacation, a big raise or promotion, flexible or remote work options, or even free healthcare. That makes a powerful case for adding or enhancing student loan support as part of your overall financial wellness benefits. Strong HR leaders who want to truly boost financial wellness, increase productivity, and attract and retain a talented and engaged workforce, understand that the growing student health crisis needs to be addressed.
A Major Segment of Your Workforce Is Affected
It’s easy to think that student debt benefits are a specialized offering, impacting only a small percentage of the people you employ. These benefits may seem as if they should come far behind offerings for all employees, such as 401(k) matching or emergency savings programs.
But the reality is that the percentage of your workers impacted by student debt may be much larger than you realize. The latest stats from Student Loan Hero are eye-opening: 46 million Americans currently have some amount of student debt. Together, they owe nearly $1.75 trillion — about $440 billion more than the total U.S. auto loan debt and is the second-highest consumer debt category after mortgages.
And it’s not just the recent grads in your workforce that are feeling the squeeze. Over 68 percent of people with student debt are between ages 25 and 50, according to Educationdata.org . In fact, adults aged 30 to 44 owe nearly half of the national student loan debt balance. That includes their own debt and parent loans they may have borrowed to help children pay for college.
Student Debt Affects Overall Wellness
Employees burdened with student debt may find it much harder to achieve their other financial goals, such as budgeting effectively, saving for emergencies, and saving for retirement. Major milestones and important life goals, such as buying a home, continuing education, or starting a family, may also get put on hold.
Even more concerning, many borrowers are suffering from high levels of emotional distress due to student debt. A March 2021 survey of 2,300 high-debt student loan borrowers conducted by Student Loan Planner found that one in 14 respondents had experienced suicidal thoughts at some point during their repayment journey.
Don’t Count on Government Relief
This stress over student debt comes when many borrowers have taken advantage of the currently 23-month break in student loan payments. Under the Coronavirus Aid, Relief and Economic Security (CARES) Act, federal college loan payments were suspended and interest rates were set to 0%. After multiple extensions, the pause is expected to end on August 31, 2022. That means employers will need to prepare for a new jolt workers may feel come September when repayments begin again.
Some of your workers may not be ready. As a result, they may find it difficult to integrate loan payments into budgets already stressed by the pandemic and other factors. More than two-thirds of borrowers say it would be difficult to make payments again, according to a Spring 2021 Pew Charitable Trust survey of 2,806 respondents.
While many headlines are discussing possible student loan forgiveness that the Biden administration is considering, there is nothing concrete yet. And, even if the best-case scenarios come to pass, student loan forgiveness will likely have its limits. Your employees with private loans and high balances may still need help.
What Employers Can Do Right Now
The good news? There is plenty employers can do to help workers get out from under the burden of student debt. Here are some suggestions.
Consider Repayment Assistance
The CARES Act helps employees and provides new incentives for employers. New government rules extend the CARES Act provision allowing employers to provide $5,250 tax-exempt annually for an employee’s student loan repayment through 2025. Employees will also have no tax liability for the contributions. (Before CARES, only tuition reimbursement was allowed and employees had to treat a student loan repayment benefit as income.) The tax advantages have prompted more employers to look into offering a college loan repayment benefit, according to Jennifer Nuckles, executive vice president and group business unit leader at SoFi.
In addition, there are other ways to tuck repayment assistance into an employee’s benefits package. Some companies are tying signing bonuses to student loan repayment. Others are offering monthly support based on years of service to the company. Are there some creative ways you can use incentives to help workers pay down student debt?
401(k) Debt Paydown Programs
What’s often called the “Abbott Model,” named for Abbott Laboratories’ creative benefit, the IRS opened the door to employers who want to incentivize paying down student debt and saving for retirement at the same time. Saving for retirement is often one of the first financial goals sacrificed to student debt. A 401(k) paydown program can help workers balance these two priorities.
With this benefit, employers agree to pay matching funds to an employee’s 401(k) as long as that employee is contributing a certain minimum percentage of their total pay toward their student loan debt. Some organizations are matching percent for percent to attract workers.
Student Loan Debt Counseling
You can help your employees handle student debt by providing them with one-on-one counseling sessions with personal finance or student debt repayment advisers. We know from SoFi at Work’s The Future of Workplace Financial Well-Being: 2022 Employee and Employer Perspectives study that access to a financial planner/advisor, financial education seminars, and budget planning tools are among the top financial benefits employers said they offer.
The challenge now is to make sure student loan repayment advice is part of those benefits. For instance, HR leaders may need to provide information about alternative payment plans for workers who can’t make their student loan payments, including filing for forbearance or one of the government income-driven repayment programs or refinancing with a private lender.
The end of the repayment pause gives HR leaders an opportunity to reach out to employees and let them know about the company’s available resources to help with student debt. (This is even more important for employees still working remotely or returning on a hybrid basis.) As workers resume their student loan payments, they may be concerned about how they will be able to make these payments while also managing their other financial goals and responsibilities.
Make sure borrowers understand the direct student loan repayment support you offer and other financial wellness offerings that go beyond student loan relief, such as budgeting tools and advice, financial wellness assessments, set-and-forget savings plans, and personal finance counseling and education. These programs can help employees see the big picture and deal with current challenges.
The burden of student loan debt affects both employees and employers. When your workers are stressed about debt, it can lead to lower productivity and higher absenteeism rates. It can also hold them back from achieving their personal, financial, and professional goals.
HR leaders can help their workforce get through the student loan crisis with effective benefits and solid financial wellness counseling. SoFi at work may be able to help.
Photo credit: iStock/shapecharge
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