Student loan debt continues to rise. Whether attending public or private four-year institutions, more than half of college students finance their education with the help of loans. As of 2023, according to Forbes, total student loan debt (including federal and private loans) stands at $1.75 trillion, or an average of $28,950 per borrower. Employees looked to their employers throughout the pandemic for increased physical, mental, emotional, and financial support. Many now seek help with student loan repayment to enhance their financial well-being.
Moratorium Coming to an End
In March 2020, as part of the CARES Act response to COVID-19, Congress enacted a student loan payment and interest moratorium. The legislation suspended federal student loan payments and interest accumulation for nearly 45 million borrowers through September 2020.
The moratorium has since been extended five times. It is now scheduled to end in October 2023, when payments and interest will resume. Although the Biden Administration attempted to provide financial relief by enacting a widespread student loan forgiveness program, the U.S. Supreme Court struck that down in June 2023.
By October, Americans with student loans will have gone three and a half years without making payments or accumulating interest. With 54% of respondents in a 2022 Harris Poll saying they are unable or barely able to cover monthly living expenses despite holding full-time jobs, millions will face significant financial stress when student loan payments resume.
Why should employers care about student loan assistance?
Employees facing financial stress 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 with financial stress spends an estimated 156 hours (19.5 days) each year distracted from work because of those concerns. Based on the average American hourly wage, that’s the equivalent each year of about $4,000 in payroll per employee for time spent fretting about money problems.
Workers who feel supported are more engaged and less likely to leave
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.
Many jobs require higher education than before
Companies naturally 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 can employers 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. Even though it wasn’t direct loan payment help, SLRAs provided some long-term financing.
The CARES Act of 2020 took that further by allowing employers to make direct, non-taxable SLRA payments of up to $5,250 per employee through December 2020. In 2021, the Consolidated Appropriations Act (CAA) extended this option through 2025.
Lifestyle spending accounts
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
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.
TPAs Have a Growth Opportunity
With student loan payments about to resume, millions of employed Americans will face new and increased financial stresses. TPAs, talk to your employer groups about SLRAs, LSAs, and ESAs. With the impact of financial stress on worker productivity and turnover, many employers will be looking for ways to expand or improve their benefits programs to help address these challenges.
DataPath, Inc. has been a full-service TPA solutions provider for nearly four decades. Our cloud-based Summit platform is the industry’s first all-in-one cloud-based solution for CDH, HSA, Well-Being, COBRA, and Billing administration; plus, we offer comprehensive Operations BPO and award-winning Marketing Services for users of any administrative platform. Please enter your email (above right) to be notified when new blog articles are published.