How Student Loan Debt Impacts Employees
Student loan debt in the United States has become such a critical issue for employees that many companies are now offering to help their overwhelmed workforce.
According to Education.org, approximately 15% of all Americans have outstanding student loans they used to finance their undergraduate education. Of these, 7% also have postgraduate loans with the average individual owing $39,351 in student loans.
Overall, 43.2 million Americans owe $1.7 trillion in U.S. student loan debt. These staggering numbers are fueled by consistently increasing higher education costs.
Borrowers experienced some relief during the last 15 months through the Coronavirus Aid and Economic Security (CARES) Act. The act granted a temporary hiatus on loan repayments — from March 2020 to September 30, 2021 — to address the college debt crisis.
With student loan debt likely increasing in the years ahead, employees will need help. Here is a look at the issue and some of the solutions companies have instituted to help their workers address the challenge.
Student Loan Debt Impacts Employee Productivity & Businesses
Having to repay high student loans can create a lot of stress for employees, especially those who are not high-income earners.
The constant worry about money can cause a negative toll on mental health. Ultimately, this can lead to distraction and anxiety, creating a negative impact on employees’ ability to do their jobs well. Financial stress also influences workers’ personal lives and relationships.
While multiple generations struggle with student loans, Millennials are suffering the most. Nearly 80% of millennials said their student loan debt had affected their ability to meet financial goals, according to PwC.
Financial stress can also lead to problems beyond the job. According to the American Psychological Association, finances are the top cause of stress for many in the U.S., and that stress can lead to a variety of other health problems, including heart disease and diabetes.
The impact that stress has on the individual can cost employers thousands of dollars in decreased productivity and excessive absences and sick days. Stress can also increase an employee’s doctor’s visits and ultimately driving up the costs of healthcare insurance.
How Employers Can Help with Student Loan Debt Assistance
Fortunately, employers can help workers by providing student loan debt help.
To help their workers address the challenges associated with U.S. student loan debt, many companies have taken a solutions-based approach to relieving workers’ anxiety, simultaneously boosting recruitment and retention. According to a MetLife study, nearly 86% of employees reported that they would commit to a company for five years if the employer would help pay back their student loans.
Employers have found that offering a matching contribution or a set monthly allowance for student debt helps employees and contributes to overall workplace satisfaction. For example, PricewaterhouseCoopers (PwC) offers its employees a $100 monthly payment directly to student loans.
Other companies offer tuition assistance programs in addition to student loan debt help, which allows employees to obtain further degrees without accumulating additional student debt. Some companies offer sign-on bonuses that can be used to pay student loans.
Companies also benefit because they can receive tax benefits for student loan repayment programs.
The CARES Act allows employers to make annual tax-free contributions of up to $5,250 through 2025, and employers do not have to pay taxes on those contributions. Before the COVID-19 pandemic, the Society for Human Resource Management said about 8% of companies offered a loan repayment program. However, companies indicated they would do more if they didn’t have to pay taxes on the contributions. With the CARES Act allowing companies to avoid paying taxes on the contributions, the number of companies offering a repayment plan could rise to more than 30%.
Aid Helps More Than the Bottom Line
U.S. student loan debt presents a considerable challenge, but student loan repayment benefits can provide stress relief to employees. In turn, reduced employee stress positively impacts companies’ ability to build a stable workforce without worrying about lost productivity and turnover.
Further, student loan repayment assistance can ease employees’ burdens, increase their work productivity, save medical visits, decrease the number of unplanned absences, and improve their overall well-being.