Employee Benefits

The Unexpected Impact of Student Loan Debt on Employees

Overworked tired secretary holding glasses and touching her nose.

Employees of all ages have student loan debts. Most took out loans for college or professional degrees, or to help family members with tuition costs. But now these borrowers are struggling with the burden of paying off their debts, and it’s affecting their daily lives. Consider the unexpected impact of student loan debt on employees.

Causes high emotional and financial stress

Employees with student loans owe about $37,000 each. This makes student loan debts second only to mortgage debts. Many people who took out student loans thought their salary would more than cover the monthly payment. But they’re discovering that after making their payment each month, they have just enough money left to cover basic living expenses.

The impact of student loan debt on employees is significant. Most people with student loans make payments for nearly two decades. It’s easy for them to become depressed because they don’t see a way out of the problem. Over 40% of people who earned bachelor’s degrees report having high or very high emotional and financial stress.

Creates work distractions

Worries about student loan debts cause employees to be distracted at work and impacts job performance. They spend hours each day thinking about ways to reduce expenses and stretch their salary. Because they can’t focus on their work, they frequently make mistakes. Employees with student loans tend to take more sick days to deal with health problems or exhaustion from financial stress.

Reduces job options

People with student loan debts feel overwhelmed. After earning a college degree, graduates can’t find a job that matches their career interests. Because of their loan commitment, they end up accepting a position outside of their career field. Often, the salary barely covers their monthly loan and living expenses.

Erodes business dreams

Few people with student loans think about returning to college to continue their education. They can’t afford the expense, even if their employer provides tuition reimbursement. And any dreams of starting a business go unfulfilled since they need a steady income. Economists have noticed a 14% drop in new small business growth. It’s a troubling trend since small businesses provide 60% of new employment opportunities in the United States.

Triggers financial worries

The impact of student loan debt on employees manifests into worries about the ability to survive unexpected expenses. Most have less than $1,000 saved to cover medical bills or car repairs. They use credit cards to pay these expenses. People with student loans tend to put off buying a home or starting a family.

The default rate on student loans is increasing. Last year, student loan delinquencies were over $166 billion. Missed payments can affect people’s credit scores for years. They may have difficulty buying major purchases, such as a car, or getting a home mortgage. And employment options may be limited as some employers are checking employees’ credit scores before offering a position.

Two ways employers can help

Employees want to work for employers who will help them with student loan payments. One study showed that 52% of employees were attracted to a job if the employer offered to assist them in repaying their student loans. Prospective workers said this benefit was more important than many other traditional benefits and perks.

  1. Offer a student loan benefit – Employers often say they can’t afford to help employees with student loans, but they can. Instead of increasing budgets for employee benefits, use existing resources. The majority of employers offer 401(k) retirement matching funds for employees. But every year employees leave about $24 billion employer matching funds on the table.

Employers can offer Employee Choice, a student loan repayment benefit, that uses the funds they’ve already set aside for 401(k) matching contributions. Employees can apply unused matching dollars to help repay their student loans. Or, they can split the matching funds to make a payment to their student loan debt and save the other part for retirement.

  1. Provide financial well-being programs – Employees also are interested in financial well-being programs. Research shows that 74% of employees look to their employers to provide financial wellness benefits. They want to understand how to stretch their finances to meet daily living needs, pay off loans, save for retirement and plan for a vacation.

Learn more about BenefitEd and Employee Choice programs by visiting www.youbenefited.com, calling 844-358-5707, or emailing support@youbenefited.com

Sources:
Forbes

The Washington Post
The Columbian
AARP

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