Updated 11/28/22: Since this blog post was published, payments and interest on federally-held student loans are now set to resume 60 days after a court decision on President Biden’s forgiveness program. If no decision has been issued by June 30th, 2023, payments will resume 60 days later.
In the wake of the COVID-19 pandemic, employers and employees alike have been experimenting with new workplace models and practices. Even so, some pre-pandemic obligations persist: Federal student loan payments, suspended since March 2020, are scheduled to resume on December 31st, almost three years later. That means that student debt is again a huge factor in employees’ lives.
Student debt is a major source of stress for borrowers, if not their biggest concern. The average borrower owes more than $37,000 in student debt and takes 20 years to pay off their student loans, which impacts how important life decisions. In fact, ~81% of borrowers say that because of their loans, they’ve delayed milestones like getting married or growing their family. Lots of factors contribute to the debt crisis: Student debt, $250 billion in 2004, is projected to reach $2 trillion by 2024 — with parent borrowing approaching $100 million.
Student debt is a fact of life, often for decades. But most employers don’t know how much their employees worry about money and don’t take an active role in helping them manage student debt. That’s a valuable area of opportunity to establish your company as an employer of choice, because student loans can play a crucial role in the success or failure of just about every other aspect of hiring and retention. Here are six of the most pressing examples:
1. Want a diverse workforce? Pay attention to student loan debt.
- Debt disproportionately impacts students from marginalized communities – but talent isn’t restricted by ZIP code or demographics.
- On average, Black students carry more student loan debt than their white peers; that gap reflects and amplifies the historic wealth gap between communities of color and white communities.
- Each individual’s student debt burden affects an organization’s ability to attract and support a diverse workforce.
2. Long-term debt keeps people from climbing the economic ladder.
- Long-term loans can put home ownership, a traditional means of economic mobility, out of reach for many.
- Even if their careers are advancing within your company, that sense of stagnation can hurt employee engagement and retention.
3. Debt hurts mental and physical health.
- Mental health consequences are real: Financial uncertainty means constant anxiety and stress. That goes double as we deal with the ongoing trauma and uncertainty of the pandemic.
- Debt affects physical health, too. Couples dealing with infertility often have to pay out of pocket for treatments; about 7 in 10 tap (or drain) their personal savings or take on added debt.
4. Long-term debt can cause financial instability, even on a six-figure salary.
- Steady, monthly four-figure debt payments make it harder to save for a rainy day.
- In a time when two-thirds of Americans have less than $1000 in savings — and when two in five don’t have $400 in cash for an emergency — the urgency to save is real.
- A six-figure salary doesn’t erase financial stress: nearly 3 in 5 say money worries distract them from work. Two in five earning $100K+ are considered “financially unstable.”
5. You offer great benefits — but employees need money to enjoy them.
- Unlimited vacation and paid time off don’t help employees without enough income to enjoy them.
- A generous parental leave policy can only work if people have the confidence that their financial foundation can support a family.
6. Retirement planning.
- Saving for retirement ideally begins when a career begins, but debt repayment can put people far behind schedule.
- The choice between paying back loans early to save on interest and saving for retirement isn’t always clear.
- A five-year delay in retirement savings means nearly $80,000 less saved when you retire; a 10-year delay tallies to a $130,000 shortfall, on average.
Employers of Choice can Break the Taboo Around Debt
Financial wellness is top of mind for most HR and benefit leaders. For those committed to advancing their employees’ holistic well-being — personal, professional, and financial — understanding the pivotal role of student debt is essential.
Financial well-being underpins every aspect of employment, including the drive to retain and attract top talent. Employers of choice understand this and support their population with resources and strategies to successfully manage student debt.
Simply put, without addressing student loan debt, there is no level playing field, and diversity and inclusion suffer. Employees eager to begin families are hobbled by outsize student loan debt; downtime diversions are moot when student loans rival mortgage payments. Savings delayed may never be recovered; underfunded retirement plans have a long tail. The challenge persists for people long decades out of school, and can complicate even the most robust retirement package.
Making Debt History
Here’s the good news: supporting your workforce with their student debt means supporting your organization at the same time. For example:
- Tax-free contributions to employees’ loans can shorten the repayment period and scale back the economic burden.
- Loan forgiveness or lower monthly payments can help employees reach their repayment goals with less stress.
- An income-driven repayment plan links loan payments to earnings – supporting more robust long-term planning.
We have the unprecedented opportunity to help employees address and resolve student debt.
Introducing a financial wellness plan is a solid step forward, both as a recruiting-and-retention resource and powerful proof that you value employees’ financial well-being. These plans, once considered optional, are increasingly essential for employers of choice who seek top talent.
Just as the pandemic forced a pause in federal loan repayments, HR leaders now have a chance to reimagine how they can support employees dealing with student debt. Summer can help all borrowers get closer to freedom from debt — and to the freedom to pursue their dreams.
Employers of choice will seize this singular moment to support their employee populations and their organizations. A new world of work is a fresh chance to do better.
Schedule a one-on-one demo with our product specialists to see how offering a comprehensive digital education assistance solution through Summer can help increase productivity and retention within your employee population in 2023.