How big a problem is student-loan debt? Well, the short answer is huge.
Figures by the Federal Reserve put the number of Americans with student-loan debt at 44 million and the debt amount at $1.5 trillion. That’s some serious money that’s inarguably having a huge impact on the health, wellbeing and effectiveness of the nation’s workforce.
To better understand the full scope of that impact, two organizations that are dedicated to helping student-loan borrowers–Student Debt Crisis and Summer–released earlier this month the findings of a nationwide survey of 7,095 American adults.
The research paints a somber portrait of the extent of the problem:
- 65 percent of student loan borrowers reported having less than $1,000 in their bank accounts;
- the average total debt was $87,500, while the average annual income was $60,000;
- 30 percent said they have a student loan bill that is higher than their rent or mortgage bill;
- 20 percent reported being unable to make their next loan payment, while 44 percent reported that making their next payment would be a struggle; and
- 6 percent said they have had their wages and/or Social Security garnished.
Earlier this week, I interviewed the panel’s moderator, Rob Levy, vice president of financial health at the Center for Financial Services Innovation in Chicago, to better understand the scope of the problem and how employers can bring some relief.
What is the overall research telling us about the extent of the student-debt problem?
It’s telling us that student debt is a pervasive problem and may be hampering borrowers’ abilities to deal with other aspects of their financial lives … . The average student-loan debt for class of 2017 graduates was $39,400, according to Student Loan Hero. This is not just a millennial problem, either. Older students, parents and grandparents are carrying student debt as well. And research from the U.S. Financial Health Pulse suggests that unmanageable student debt can prevent borrowers from saving for retirement or seeking and receiving medical care.
A recent SHRM study suggests that program adoption among employers has been slow in coming. Is that in line with what you’re seeing?
I don’t agree that student-repayment solutions have been slow in coming. While SHRM data finds that only 4 percent of employers are currently offering these programs, among large employers, the number is double, according to a WorldatWork survey. It’s also a relatively new issue to many people; the student-debt crisis has only been in the public discourse at this level since 2013, when it surpassed credit-card debt. While a handful of fintech companies were the initial trailblazers, now we are seeing the larger benefits providers like Prudential and Fidelity begin to offer solutions.
That said, many employers do have some understandable concerns. The first is often cost, but early data suggest the ROI should be strong. Research has found that 86 percent of employees would commit to a company for five years if the employer helped pay back their student loans. Another concern is fairness because student-debt support is, by definition, only available to those employees with student debt. However, it’s often precisely those employees carrying student debt who are likely not taking advantage of other benefits like a 401(k) match. Thus, if positioned properly, student-debt solutions may help a company’s benefit package become more fair overall.
What are some of the more noteworthy “outside-the-box” measures that employers are pursuing?
One of the newest trends in student-debt-repayment solutions is providing the benefit as a 401(k) contribution rather than as a direct contribution to the employee’s loans. This solves several problems. It’s ultimately cheaper for the employer because 401(k) contributions are pre-tax, and it leverages familiar platforms and systems for benefits administrators. Contributing to a 401(k) also directly supports employees’ long-term financial health through building their retirement savings, without penalizing them for not being able to contribute directly due to their student-debt burden.
Is there advice you would give HR leaders who are considering launching an initiative or program?
The first place to start when launching a financial-wellness or student-debt program is understanding the needs of your employees. This can entail surveying your employees about their financial health and/or looking at existing data on 401(k) contribution rates or other benefit-usage statistics. From there, each company should build out their program based on what their employees truly need. Sometimes, this entails offering a benefit, like an emergency-savings match, that is equally available to all employees. Other times, however, you may want to offer a benefit, like student-debt solutions or financial coaching for low-wage workers, that only applies to a subset of employees who have an acute need.