Solving the Student Debt Puzzle: Key Strategies for HR Leaders
In the wake of COVID-19 the nation's student loan landscape has experienced quite the shift. In 2020, the federal government hit the pause button on student loan payments and interest. Uncle Sam chipped in about $5 billion each month to cover the interest on both subsidized and unsubsidized loans. It definitely gave millions of borrowers a breather, but now the other shoe has dropped. On September 1, 2023, interest began to accrue again and on October 1, 2023, payments resumed.
Now, with the average student loan bill at around $400 per month and the prospect of borrowers navigating unfamiliar loan servicers, HR leaders have quite the puzzle to solve as they look to support their employees through this transition.
Understanding the Numbers
At the end of 2022, the Federal Reserve reported that over 43.5 million Americans are burdened with student loan debt, surpassing $1.7 trillion in total. This debt load exceeds that of credit card debt, with each borrower owing an average of $37,787.
The Impact of Student Debt
According to BrightPlan’s 2023 Wellness Barometer Survey, 92% of employees are stressed about their finances and rising debt is a contributing factor. 50% of employees with debt-related stress spend an hour per week on average dealing with these issues at work, according to the Financial Health Network. Seeking support, 62% would be more likely to stay at a job that offered debt-related benefits.
Additionally, as employees grapple with student loans well into their working years, their ability to save and invest for retirement becomes constrained. For many, this translates into delaying their retirement plans significantly. This not only affects employees' own financial futures but also carries implications for employers. Employers spend an average of $50,000 per employee each year that the employee delays retirement due, in part, to higher labor costs and increased healthcare premiums. When employees delay retirement, it costs businesses money and makes retention difficult because of fewer growth opportunities for mid and entry level workers.
What You Can Do to Help
Here are some of the ways HR leaders can help.
Focus on education and personalized support:
Simplifying the complexities of student loan repayment can seem like a daunting task. To empower your employees in making informed decisions, consider offering a range of educational resources and workshops. These can cover various facets of loan repayment, including income-driven plans and loan forgiveness programs, along with any associated tax implications. Additionally, leverage CFPⓇs to offer tailored guidance on alternative payment plans that align with their unique financial goals and circumstances.
Offer debt repayment support:
Many employers are stepping up to help their employees pay down debt through company contributions, diverting a portion of 401(k) matching funds to debt repayment, or funding employee debts through payroll deductions. Employer contributions can help employees pay off student loans faster and save on interest over the life of the loan. Additionally, student loan repayments of up to $5,250 per year can be provided to employees on a tax-free basis.
The SECURE 2.0 Act also allows employers that match retirement fund contributions to treat employee student loan payments as retirement fund contributions. This means that if an employee is paying $400 a month towards student loans, employers can match that by contributing $400 toward the employee’s retirement fund. This provides employers with another benefit in their toolbelt to better engage younger, educated employees who may otherwise be unable to save for retirement. Employers can begin matching these loan payments after December 31, 2023.
Assess your workforce needs:
With loan payments resuming, it's essential for HR leaders to assess their workforce's overall financial well-being. Encourage employees to evaluate their income, expenses, and any changes in their financial circumstances since the payment pause began. Understanding the unique financial situations of your employees will help tailor your support and guide them more effectively.
Provide a comprehensive financial wellness program.
A holistic financial wellness solution can help employees set and achieve financial goals, such as paying off student debt and building savings. Addressing debt in a comprehensive way is more effective than simply reducing student debt at all costs. Additionally, Certified Financial PlannerⓇ professionals and financial wellness coaches can advise employees on their debt repayment options and help employees understand their overall financial health.
The resumption of student loan payments isn’t fun for anyone, but it offers an opportunity for businesses to show they care and to make a difference in the financial well-being of their workforce. By understanding employee needs and facilitating access to financial wellness tools and resources, you can empower your workforce to navigate this transition successfully.
See how BrightPlan Total Financial Wellness can support your employees with student debt.