After a three-year hiatus, student loan repayments are officially starting up again this month.
That means nearly 44 million out of 161.5 million working Americans will begin paying back their student loans as of October 1. And, with a collective $1.7 trillion of outstanding debt – and the average borrower holding $39,000 of debt – there’s no doubt that student loan repayments will have an impact on your people and, ultimately, your business.
Student loan repayments and its impact
At one point, student loans weren’t such a big deal; they were just part of everyday life. But with the years-long repayment pause coupled with a record-high cost of living, these repayments have the potential to significantly disrupt employees’ financial health and create additional stress.
“Financial stress [due to student loans] has significant impacts on mental health and workplace productivity,” says Mick MacLaverty, CEO and co-founder of Highway Benefits. “Faced with the burden of making monthly payments, employees with student debt are going to become even more financially stressed which, in turn, could result in costly expenses due to productivity loss, increased burnout and high employee churn.”
Due to the pause, many have developed budget and financial goals without taking outstanding student debt into account. “Student loans have not been top of mind for the majority of borrowers in three years. Now that forbearance is over, that’s going to change,” says MacLaverty. “If they aren’t already, employers will likely begin to see increased demand for student loan support.”
And this isn’t just a “now” problem; it’s going to continue to affect student loan borrowers as they prepare for their futures as well. In fact, two-thirds of employees say student loan repayments will derail retirement plans, according to research from Nationwide, and 59% are considering additional sources of income such as side gigs to offset the financial strain.
“Left unchecked, the student debt crisis has the potential to disrupt a company’s culture and bottom line,” says MacLaverty. “Luckily, employers can play a part in the solution to student debt, nip the downstream effects of resuming payments in the bud, and stand out in the market with employer student loan repayments.”
How HR can help
Even though student loans aren’t directly related to the workforce, that doesn’t mean loan repayments won’t have a direct impact on your people. “Employers should expect that the resumption of student loan payments will have a serious impact on employees’ emotional, financial, and physical well-being, which in turn will have serious costs for employers’ bottom lines,” says MacLaverty.
If your workforce is impacted by student loan debt, you may consider education and counseling to help them feel confident in their decisions and reduce stress.
“You would be surprised how many borrowers are confused by their student loans,” says MacLaverty. “After three and a half years of student loans being ‘out of sight, out of mind’ nearly half of all borrowers don’t know how much they currently owe or who their loan servicer is.” So even if there are options that would lower employee stress, many are not even aware that these options are available.
Whether it’s through a broader financial health benefit or a student loan-specific education session, HR can help employees understand their repayment options and reduce the stress of not knowing what the best option is for them.
And, if you want to take things a step further, consider offering student loan repayment benefits to contribute toward employees’ repayment.
“While companies can provide educational resources, the most impact they can have is to contribute to their employees’ student loans tax-free,” says MacLaverty. “Companies are able to contribute up to $5,250 per employee per year tax-free. Under a written educational assistance plan, companies can even create custom rules that align with their company policy and HR needs.”
This way, employees can feel supported by their employer while shaving years off of their student loan repayment timeline.