By Paul Joo
The idea that happy employees are productive employees is not a new one, but the benefits that employers offer to promote employee well-being have evolved over time. Employer-sponsored healthcare first emerged in the 1940s. In the 1960s, IBM was known for hosting employee carnivals and offering employees access to country clubs and golf courses around the US. In the 2010s, tech companies (followed by others) aimed to attract and retain employees with in-office perks like ping pong tables and smoothie bars. Today, the pandemic has created a reckoning around what employees really need to thrive. There’s movement away from in-office perks towards those that focus more holistically on employees’ physical, emotional, and financial health.
The burden of student loan debt
45 million Americans owe an estimated $1.7 trillion in student loan debt, including four in 10 millennial employees. By the end of 2020, borrowers’ student loan balances grew by 9% and total student debt increased by 12%, the highest increases in years. The impact of that debt is crushing: between 20-34% of borrowers’ take-home pay goes towards student loanmonthly payments, and many individuals are saddled with debt for decades. Nearly three-quarters of borrowers say those loans have an impact on their ability to meet other goals, like paying for health insurance or saving for retirement. Student loan debt is linked to lower homeownership rates, less consumer spending, and fewer new small businesses—it affects the entire economy. Debt is also linked to high levels of stress and anxiety.
When the pandemic broke out in 2020, the repayment of student loans was put on pause as a temporary, emergency relief measure. On his first day in office, President Biden continued the suspension of interest and payments and Congress passed the CARES Act, which contained provisions like tax incentives for employees whose employers help with student loans. However, a national poll of 38,809 student loan borrowers found that the coronavirus pandemic has compounded their economic stress, with 59% reporting increased stress, anxiety, and depression caused by their student loans during the pandemic.
Come October, borrowers could once again be responsible for making payments. The loans are currently paused, not forgiven, which means borrowers are facing a payment cliff. According to research that Pew conducted in fall 2020, 58% of borrowers with paused payments said they would have difficulty affording their payments if they had to begin in the next month, and more than 9 million borrowers could need assistance when the payment pause ends. This polling demonstrates that many borrowers face challenges understanding, enrolling in, and remaining in IDR plans, which tie monthly payments to income. With the repayment deadline looming, there’s no better time for employers to step in and lessen the student loan burden for their employees.
How employers can tap student loans to improve financial health
The CARES Act temporarily changed the IRS code to allow employers to continue to make contributions of up to $5,250 per employee annually towards eligible education expenses, like tuition or student loan assistance, without raising the employee’s gross taxable income. That is a great opportunity, but the cost of student loan debt isn’t the only problem that borrowers face—it’s also the complexity. There are dozens of types of loans that involve varying requirements, payment schedules, and interest rates. It’s not uncommon for borrowers to cobble together multiple loans per semester, racking up 20 or more in pursuit of a four-year degree. Repaying those loans is not a simple affair. It takes a high degree of financial literacy, intimate knowledge of the nuances of student loan financing, time, and organizational bandwidth to stay on top of it all. Because many borrowers aren’t equipped with these capabilities or have competing demands on their attention, they can make mistakes, paying more than they should and missing opportunities for savings.
It is exceedingly difficult for someone with a steep student loan burden to achieve financial stability. This is where employers can step in and help employees manage their student loan debt by offering student loan optimization programs as a benefit. These programs centralize the loans in one place and then run algorithms that identify relevant assistance programs and make personalized recommendations about how to enroll in those programs and maximize savings. They do the heavy lifting of analyzing variables so employees don’t have to, providing an efficient path to better management of student debt.
For employers that do offer student loan contributions, optimization platforms allow companies to make those contributions knowing that complementary resources are being leveraged to maximize the ROI. And for companies that can’t afford to make direct contributions, student loan optimization means they can help their employees reduce debt without the high cost of making the payments themselves.
By helping decrease the burden of student loan debt, employers can help their employees improve their overall financial profile. Solutions like refinancing and income-driven repayment (IDR) can unlock hundreds in savings each month, shifting the narrative from debt to growth. Those savings can open doors to other areas of financial well-being, like the ability to afford a mortgage and build a family. Student loan optimization has an immediate impact, serving as a catalyst to set employees up for greater financial success.
Student loan optimization is shaping up to be one of the most in-demand employee benefits in the modern workplace, helping employers to attract and retain top talent. It also helps demonstrate a commitment to Diversity, Equity, and Inclusion, since student debt disproportionately impacts marginalized groups. Ultimately, student loan optimization programs put employees in a better position to thrive, and give employers the ability to offer the kind of well-being-focused benefits that can make the greatest impact.