Student loan debt continues to be a significant financial burden for millions of Americans. More than half of college students finance their education with loans, whether they attend public or private four-year institutions. As of 2023, according to Forbes, total student loan debt (including federal and private loans) stood at $1.75 trillion, or an average of $28,950 per borrower.
With the moratorium on student loan payments ending in October 2023, millions of borrowers are now facing the challenge of resuming payments after a three-and-a-half-year hiatus.
The Moratorium and Its Impact
In March 2020, as part of the CARES Act response to COVID-19, Congress enacted a student loan payment and interest moratorium. This legislation suspended federal student loan payments and interest accumulation for nearly 45 million borrowers through September 2020. The moratorium was extended five times, providing temporary relief to borrowers. However, payments and interest resumed in October 2023.
Despite the multi-year moratorium, financial stress caused by student loan debt has remained a pressing issue. In a 2022 Harris Poll, 54% of respondents said they were unable or barely able to cover monthly living expenses despite holding full-time jobs. The resumption of payments has significantly increased financial stress for millions of Americans.
Employer Role in Alleviating Financial Stress
Employers play a crucial role in supporting their employees’ financial well-being. Here’s why employers should care about student loan assistance:
Increased Productivity
Financially stressed employees are less productive. The Teachers Insurance and Annuity Association (TIAA) finds that 85% of student loan debtors feel stressed by that burden. Graystone Consulting, a division of Morgan Stanley, reports that one in five employees admit that financial worries impact their productivity at work. A full-time employee dealing with financial stress spends an estimated 156 hours (19.5 days) each year distracted from work due to money concerns. Providing student loan assistance can enhance productivity and reduce absenteeism
Employee Retention
According to Gallup’s annual workforce surveys, companies with high employee engagement are 21% more profitable and 22% more productive than others in their industry. Workers anxious for any reason, including personal finances, are far more likely to disengage.
Even in companies with high turnover, business units with highly engaged employees achieve 24% lower turnover than others in the same industry. Turnover is even more expensive than a lack of engagement. The average cost of replacing an individual employee is one-half to two times their annual salary.
In their State of the Workforce III study, Morgan Stanley found that 89% of employees would be more likely to stay with their employer if provided financial benefits that meet their needs. Three-fourths (75%) consider employer-provided financial benefits essential to achieving their financial goals and would be willing to change employers to get them.
Employers may want to consider whether providing employee financial well-being assistance would cost less than coping with decreased productivity and increased turnover.
Skills Evolution
Companies benefit from the availability of a skilled and educated workforce. One reason for the increased student loan debt is the need to pursue higher education to qualify for many jobs. Careerbuilder.com reports that 61% of employers agree that job skills have evolved. Many jobs that used to require only a high school diploma now demand a college-level education.
How Employers Can Support Student Loan Assistance
Student Loan Repayment Assistance
The IRS first authorized student loan repayment assistance (SLRA) in 2018. Initial programs allowed employers to match employee loan payments with contributions to their retirement plans. Then the CARES Act allowed direct, non-taxable SLRA payments of up to $5,250 per employee through December 2020, and the Consolidated Appropriations Act has extended this option through 2025.
Lifestyle Spending Accounts (LSAs)
Supporting employee financial well-being may involve direct monetary assistance or help with financial skills improvement. Lifestyle spending accounts (LSAs) can address both. Funded by the employer, LSAs reimburse employees for eligible expenses. Employer-chosen eligible expenses might include budgeting and financial planning classes, direct help with household expenses, or other subsidies. Unlike SLRAs, LSAs are taxable to employees.
Emergency Savings Accounts (ESAs)
Employers can also help employees improve their financial well-being by facilitating emergency savings accounts (ESAs). This involves payroll-deducting a set amount each payday for automatic deposit into a savings account of the employee’s choosing. Under the concept that ‘you don’t miss what you never had,’ employees often find it easier to build savings in this manner.
As student loan payments resume, employers have an opportunity to alleviate financial stress and enhance employee well-being. By offering SLRAs, LSAs, and ESAs, employers can support their workforce and promote financial security.
For 40 years, DataPath has been a pivotal force in the employee benefits, financial services, and insurance industries. The company’s flagship DataPath Summit platform offers an integrated solution for managing CDH, HSA, Well-Being, COBRA, and Billing. Through its partnership with Accelergent Growth Solutions, DataPath also offers expert BPO services, automation, outsourced customer service, and award-winning marketing services.