Student Debt: The Toughest Homework of All?

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Earlier this year, the total amount of outstanding student debt in the United States exceeded $1.5 trillion[1] for the first time—yes, trillion! That amount is nearly one and a half times what the nation owes in total motor vehicle loans. Let that sink in for a moment—think about how many cars are on the road, their cost, and how the majority of Americans are not recent graduates with student debt!

This whopping amount of student debt is seriously impacting those who carry it. Debtholders are increasingly putting their lives on hold, waiting to get married and start families due to the financial burden. They’re also taking much longer to plan for retirement[2] and purchase homes.[3]

Recent public policy efforts to address the student debt crisis have failed to gain momentum. These efforts include legislation that seeks to reduce or eliminate college tuition (e.g., the College For All Act, supported by Senators Bernie Sanders and Elizabeth Warren, as well as other members of Congress), as well as attempts to address the problem by easing bankruptcy restrictions (e.g., the Discharge Student Loans in Bankruptcy Act).

The employers of those who carry student debt are steadily becoming an interested and impacted third party. Many organizations face employees who may be less productive and attentive due to their financial troubles and who may be a greater flight risk due to lack of stability outside of work.

As though that wasn’t enough incentive for employers to get involved, employees are becoming increasingly vocal about how they would appreciate support from their companies on this issue. Specifically, one study found that debtholding employees would be willing to stay at a job 36 percent longer if their employer helped with student loans. This same study also noted that debtholders value student loan repayment assistance nearly twice as much as 401(k) contributions or health insurance.[4]

Currently, three primary methods exist for employers to support their employees with student debt:

  1. Providing financial wellbeing programs (e.g., education, counseling) to employees, either as a standalone benefit or as part of a broader worker wellbeing offering
  2. Providing access to private market student loan refinancing options / platforms
  3. Offering direct financial assistance with the repayment of loans

 

While the third option is currently the least common of the three approaches (in light of unfavorable tax treatment toward these payments), that it happens at all is a testament to how seriously employers are beginning to take student debt.

Support for a public policy fix around how these payments are taxed—specifically, H.R. 795 (2017), also called the Employer Participation in Student Loan Assistance Act—is garnering broad support from employees, employers, and HR professional associations.[5] Also, a recent ruling may pave the way for employers to match student loan payments made by employees into their 401(k) retirement accounts by virtue of a nonelective contribution.[6] So, help for employee debtholders—and perhaps a surge in the prevalence of this offering by employers—may be on the horizon.

In the meantime, I’ll be digging deeper into the issue of student debt from both the employee and employer perspectives, as well as from the public policy front, in my upcoming research. Stay tuned as we begin to publish more on this topic later in the fall.

 

 

[1] “Consumer Credit – G.19: Consumer Credit Outstanding (Levels),” Board of Governors of the Federal Reserve System, 2018, https://www.federalreserve.gov/releases/g19/HIST/cc_hist_memo_levels.html.

[2] “Student Loan Debt: Who’s Paying the Price?” EdAssist, 2016, https://solutionsatwork.brighthorizons.com/~/media/bh/saw/pdfs/edassist/2016_edassist-loanrepay-report-pr.

[3] Student Loan Debt and Housing Report 2017: When Debt Holds You Back, National Association of Realtors, 2017, https://www.nar.realtor/sites/default/files/documents/2017-student-loan-debt-and-housing-09-26-2017.pdf.

[4] Millennial Benefit Preferences Study, Peanut Butter, 2018, https://cdn2.hubspot.net/hubfs/1577846/Download_Millennial_Benefit_Preferences_Study_2015_Here.pdf.

[5] “SHRM Public Policy Letter to Rodney Davis,” Society for Human Resource Management / Michael P. Aitken, 2017, https://www.shrm.org/hr-today/public-policy/hr-public-policy-issues/Documents/Davis%20Letter%20of%20Support%202%201%2017.pdf.

[6] “IRS Taxpayer Letter Number 201833012,” Internal Revenue Service, 2018, https://www.irs.gov/pub/irs-wd/201833012.pdf.

 

Peter DeBellis

Vice President, Total Rewards Research Leader / Bersin, Deloitte Consulting LLP

Pete leads total rewards research for Bersin, Deloitte Consulting LLP. Pete has a deep understanding of the various tools organizations use to attract, motivate, develop, and retain talent—from compensation and benefits to worker wellbeing programs to experience and actualization opportunities, among others. His experience, gained as in-house rewards professional for public companies and as a consultant, helps him understand the critical linkages between total rewards, HR strategy, and overarching business objectives. Pete holds a bachelor of science degree in industrial and labor relations from Cornell University.

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