Why Employers Should Consider Student Loan Repayment Assistance As A Valuable Benefit

Why Employers Should Consider Student Loan Repayment Assistance as a Valuable Benefit

A win-win solution for employers

11/28/2023

By: Michelle Scanlon, EarnUp

Student loan payments resumed in October for the first time after more than three years. Despite the current administration’s recent “on-ramp period,” which would allow borrowers to skip payments until September 30, 2024, without being reported to the credit rating agencies, interest will still accrue. 

Unfortunately, many borrowers say they are unprepared or unable to begin making payments. Most were hopeful that some debt would be forgiven. Adding to these challenges, record-high inflation has already forced many Americans to dip into savings to pay for everyday expenses. 

Now, the over 45.3 million student loan borrowers are facing anywhere between $200-$300 in monthly payments, which could feel like as much as a 5% pay cut. A recent Morgan Stanley survey found that 34% of respondents say they will not be able to make their student loan payments at all.

It’s not surprising then that financial stress is a growing concern. With mounting student loan debt and the overall high cost of living, many Americans find themselves grappling with financial anxiety. This stress can have a tremendous impact on the workplace and negatively affect business. 

According to a study from Harvard Business Review, $150 billion in productivity was lost in a single year when employees came to work stressed. This is far greater than the costs associated with employees not showing up to work at all. 

According to Graystone Consulting from Morgan Stanley, one in five employees admits that productivity at work has been impacted by financial worries, with 49% saying they spend three or more hours each week thinking about or dealing with financial issues at work. Over an entire year, this equates to nearly 20 days. 

Meanwhile, employers continue to be challenged with finding and retaining talent. According to Forbes Advisor, 36% of HR leaders say they don’t have the resources to recruit top talent, while nearly 38% of employees quit within the first year. 

The reasons for leaving employers vary but one perk most job seekers are prioritizing is financial wellness programs. According to a consumer survey from the National Association of Personal Financial Advisors, nearly seven in 10 respondents feel they would perform better at work if their employer offered more financial wellness benefits. In fact, a survey from BrightPlan found that 54% of employees rank financial wellness as their number one desired employer benefit, up from 29% in 2021. 

Recent studies are also finding a direct correlation between employer financial wellness programs and employee retention. Fidelity Investments found that attrition rates among employees participating in its program are 78% lower. For new hires, half said the student loan repayment benefit, in particular, was a major factor in their decision to join the company. Supporting this viewpoint, a survey from MetLife Inc. found that half of Gen Z and younger millennial respondents said help paying down student loans is a “must have” benefit at work. 

But student loan debt isn’t just a “young person” problem. Individuals aged 40-49 have a combined student loan debt of $344 billion, and 30-year-olds have the highest average outstanding student loan debt. Additionally, the majority of Americans (54%) say they struggle with mental health issues because of student loan debt. 

Companies across all industries and sizes are taking note, including smaller workplaces. In a recent Wall Street Journal article, Kate Winget, a Chief Revenue Officer at Morgan Stanley at Work, which offers education benefits to corporate clients through a program called Gradifi, says that about a quarter of its clients have fewer than 100 employees.

Job postings are also changing. According to jobs platform Handshake, around 3% of full-time jobs posted in June 2023 contained keywords like student loan repayment, student loan, loan repayment, student loan paydown, education debt, debt repayment, and student debt. This is more than twice the percentage of companies doing so in 2019. 

One crucial aspect of helping debt-burdened employees is providing them with education and resources to navigate their student loan repayment journey. The IRS is also reminding employers that they can offer employees up to $5,250 tax-free as part of their educational assistance benefits. This program was made available in March 2020, yet only 8% of U.S. employers offer it, according to the Society of Human Resource Management’s 2023 employer benefits survey. This program is also set to end in December 2025. 

As part of the SECURE 2.0 Act of 2022, student loan payments may also count as retirement contributions beginning in 2024, allowing employers to make contributions to their company retirement plan on behalf of employees paying student loans instead of saving for retirement. This provision is intended to assist employees who may not be able to save for retirement due to paralyzing student loan debt and, therefore, are unable to tap into employer contributions to retirement plans. 

While advice and tax-free contributions are helpful, borrowers also need a long-term repayment plan that extends beyond student loans. They’re also looking for practical guidance rather than a self-service DIY tool. In fact, consumers are seeking solid advice, and banks are falling short, according to J.D. Power

To meet this need, employers should consider ways to empower their employees to better manage debt repayment through financial wellness programs that allow employees to schedule automated loan payments that sync with their payday. This helps to accelerate payments to the principal, eliminates monthly payment shock, and helps employees meet the obligations of their loans with less of a struggle. That means they can reduce the likelihood of defaulting on a loan or paying late fees, both of which add substantial stress. They can also potentially pay off debt years faster, helping employees build wealth. 

By offering financial wellness programs and loan repayment assistance, employees and employers both benefit. Employees can have a better quality of life …

 

Entire Article appears on HR.com

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