According to the College Board, the cost of a four-year education increased more than 200% (after inflation) from 1988 to 2018. This has placed a tremendous burden on graduates, with national student loan debt now topping a staggering $1.6 trillion. Surprisingly, while grads ages 25 to 34 are most likely to carry educational loans, the greatest amount of debt is owed by 35 to 49 year-olds, making this a problem not limited to those just entering the workforce.
Whether it’s through providing holistic financial wellness programming that addresses this issue or offering a more formal, structured student debt repayment benefit, there are compelling reasons plan sponsors should care about the negative effects of student loan debt on their employees and consider taking action.
Impacts on Employees
High loan balances can delay the achievement of important financial milestones such as home ownership (23%), emergency savings (34%), and retirement savings (29%), according to a 2019 Bankrate survey. And these delays can have serious downstream effects on other areas of financial wellness. When it comes to planning for retirement, student loan payments can keep employees on the sidelines — missing out on valuable early years of compounding returns.
Student loans are also a significant contributor to worker stress, which can lead to mental and physical health issues as well as absenteeism. According to Kiplinger’s 2020 Retirement Survey Sponsored by Personal Capital, respondents ages 40 to 74 reported a number of negative health effects due to financial stress, including increased anxiety (35.9%), sleep loss (27.4%), weight gain or loss (21.6%), depressive thoughts (20.1%) and chronic illness (5.5%).
Mutual Benefits
Providing assistance with student loan debt can help address many such issues. But the benefits aren’t limited to employees — they can also extend to the organizations that employ them. Offering a student loan repayment benefit may help afford employers an opportunity to stand out, attract top talent and boost their bottom line.
- Increase productivity. It’s hard to stay engaged and focused on the job when you’re having a tough time managing student debt. So, organizations that can help their employees successfully navigate this stressful situation may enjoy improved worker productivity and overall job satisfaction — and the myriad benefits that come with them.
- Protect your bottom line. Excessive student loan obligations can siphon off would-be retirement plan contributions and hinder employees’ retirement readiness. And that could lead to delayed retirement, which can increase health care costs for sponsors and result in higher turnover due to “promotion blockage.”
- Attract the right candidates. Student loan repayment benefits offer a potentially outsized advantage for specific subsets of employers. For example, those with workforces with a large percentage of recent grads, older millennials, Gen Xers and employees with post-secondary education (e.g., tech, financial services companies) may want to prioritize offering a student loan benefit.
Why Act Now?
While the legislative fate of SECURE 2.0 and RISE could broaden the range of options for sponsors, employers should consider focusing on this issue in the near term, nonetheless. Student loans are about to become a bigger problem for employees as the moratorium on student debt repayment is set to expire on May 1, 2022.
How Stonebridge Can Help
It can be a bit overwhelming to administer a company retirement plan, given all the documentation nuances let alone the deadlines! At Stonebridge Financial Group, we work exclusively with retirement plans and can help you with everything from designing to running your plan. Delegating fiduciary responsibilities can be a great solution for plan sponsors who lack time and the knowledge of ever-changing requirements to manage a retirement plan -- it's is all we've done since our inception back in 2004! Our robust service offering starts with ERISA 3(21) and 3(38) services and is the tip of the iceberg. We are consultants that help you with every aspect of your plan:
- Plan design including student debt benefits
- Complete IRS and CPA audit support - we have ex-auditors on staff!
- Participant 1:1 and group education
- Fee benchmarking
- Implementing cybersecurity best practices
- Ensuring participant retirement readiness
- Consulting on financial wellness
- Committee fiduciary training
- Process creation and documentation
- Plan design
- Contribution match modeling
- Annual plan compliance review
We become your outsourced retirement plan officer who dives into the morass of retirement plan details and resolves issues so you don't have to!
Please click here to schedule a short call, give us a call at (855) 530-0500 x601 or email info@stonebridgefinancialgroup.com. We look forward to helping your committee successfully fulfill their fiduciary duties with ease and excellence!
Sources:
- https://www.bankrate.com/pdfs/pr/20190227-student-loan-survey.pdf
- https://www.nerdwallet.com/article/loans/student-loans/student-loan-debt#:~:text=U.S.%20student%20loan%20debt%20totals,as%20of%20March%2031%2C%202021.&text=Who%20has%20student%20loan%20debt%3F
- https://www.kiplinger.com/web_docs/kiplinger/Kiplinger_Personal%20Capital%20National%20Poll%20Results_12-23-20.pdf
- https://www.aarp.org/work/job-search/info-2020/job-losses-during-covid.html
- https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/workers-not-retiring.aspx