Mitigating Workers’ Groans from Hefty Student Loans

As student loan payments resume after a nearly five-year pause, 43 million Americans (1 in 6 adults) are faced with repaying a collective $1.77 trillion in loan debt. For many, this means choosing between paying off debt or saving for retirement, delaying financial milestones like buying a home, or paying for their children’s education while paying down personal loans.

The stress from this credit conundrum follows employees into the workplace. Employees carrying financial stress can be distracted at work and experience lower morale. This stressor may also impact employees’ mental well-being and hinder their economic mobility and career advancement.

A report by the MissionSquare Research Institute found 23% of public-sector employees with student loan debt reported negative work morale, compared to 18% of coworkers without debt. More than 35% of female and 31% of male public-sector employees reported debt as a barrier to career advancement. Another survey by healthcare/wellness solutions company Abbott revealed 86% of respondents, including workers across all industry sectors, reduced their 401(k) contributions, while 55% stopped contributing altogether, as a result of their student loan debt.

“We see 2 out of 3 workers say they feel stressed planning for retirement,” said Craig Copeland, the director of wealth benefits research with the Employee Benefits Research Institute (EBRI). “Typically, what we see is when people are worried about their day-to-day finances, sometimes they’re taking time away from work to address that.”

Total Rewards Benefits that Lighten the Load

Employers have an opportunity to mitigate these challenges by offering student loan repayment assistance as part of their total rewards (TR) benefits. These programs can help employees manage their debt, improve financial and mental well-being, and enhance job satisfaction and retention.

According to the MissionSquare Research Institute report, 62% of private-sector employees and 56% of public-sector employees said student loan debt significantly influenced their job acceptance decisions. Additionally, it showed employees with student debt are less likely to stay with their current employer than those not carrying debt (39% versus 61%).

“Overall, financial stress will affect an employer’s bottom line due to lack of productivity, absenteeism and employee turnover,” said Betsy Mayotte, the president and founder of The Institute of Student Loan Advisors (TISLA), a nonprofit organization that provides financial advice and dispute-resolution services. “Even incremental help can save organizations money.”

From the perspective of workers, the ideal situation is for employers to institute a program that makes direct student loan payments on their behalf. But if that’s not within the budget for organizations, offering financial wellness services, resources or assistance on repayment options can still be quite beneficial. TISLA, for instance, helps eligible public-sector employers and employees navigate the Public Service Loan Forgiveness program.

Following an Action Plan

Before adding a student loan benefit to a TR package, employers should take a strategic approach, aligning benefits with corporate objectives, goals and employee needs, explained Dave Amendola, a senior director as well as benefits advisory and compliance intellectual capital leader at consulting firm WTW.

Collaboration is key, he said. HR can use employee survey data to identify financial challenges, talent acquisition team members can share insights on challenges attracting and/or landing candidates, and larger employers may involve learning and development teams. An external partner or consultant can evaluate vendors and available solutions to fit the organization’s needs.

A variety of financial institutions offer student loan repayment tools as well as educational materials to navigate federal loan programs. Employers can curate and assemble these resources on the corporate intranet site and/or share them as part of a focused loan-assistance package. Consultants and outreach avenues through TR/HR professional associations also can assist employers in selecting solutions that fit their needs and budget.

Employers may start with a lower-cost student loan assistance program, allowing total rewards and HR leadership to evaluate employee engagement. Over time, they can scale benefits, such as offering 401(k) matching tied to employee choice, Amendola added.

Flexible Program Options

Student loan benefit options can include:

• Employee assistance programs. These provide access to vendors that help employees manage and navigate student loan debt. “Employers can provide this at a relatively low cost, and it can also serve as a springboard if they want to add programs like a matching repayment contribution or others,” Amendola said.
• Student loan repayment matching contributions. Employers contribute a set amount per month toward an eligible employee’s student loan balance, up to a lifetime cap.
• Student loan retirement matching contributions. Under the SECURE 2.0 Act, employers can match employees’ student loan repayments with a contribution to the 401(k), 403(b), governmental 457(b) plan or Savings Incentive Match Plan for Employees individual retirement account (SIMPLE IRA), helping employees save for retirement while paying down their debt.
• Employee choice programs. Following an Internal Revenue Service (IRS) private-letter ruling, WTW developed a new benefit model that gives employees more flexibility in allocating employer contributions. The program allows eligible employers to reallocate a certain percentage of their 401(k)-employer contribution to a health saving account (HSA), health reimbursement account (HRA) or employee assistance program (EAP) annually.

Organizations also can look to industry leaders/peers (e.g., Starbucks, Chipotle, Verizon, Google) that have implemented various student loan repayment match or assistance programs.

A Win-Win for All

When employers provide meaningful support through assistance programs — whether through access to resources, matching contributions or flexible benefits — they generally demonstrate investment in their workforce. The dividends in such efforts may pay off in the form of improved employee morale, retention and productivity.

Editor’s Note: Additional Content

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:

• Employee Benefits
• Total Rewards
• Well-Being