Skip to main content

The impact of student loan debt

Student loan debt affects the financial lives of millions of American workers. Employers feel the burden as well, and have the opportunity to help reduce it. 

The impact of student loan debt on employees

According to a recent Forbes article:
  • 44.7 million Americans have student loan debt;
  • student loan debt is second only to mortgages in consumer debt, at a staggering $1.56 trillion;
  • the average student debt is $32,731 with an average monthly payment of $393;
  • 2.8 million borrowers are in forbearance;
  • 5.5 million borrowers are in default.
Stats like these demonstrate why student loan debt impacts if and how people save for retirement. Its impacts are numerous. Student loan debt causes people to put off expenses like starting families, buying or leasing a car, buying a home and saving for retirement.

It burdens individuals of all demographics, with 14.1 million borrowers between the ages of 35 – 49. That means many middle-aged workers are still paying off student loan debt while worrying about how to send their own kids to college and wondering how those decisions will affect their own retirement savings.

Individuals aren’t the only ones affected by this debt – their employers suffer, too.

Easing employee financial stress

Financial stress costs employers, as it can result in employees’ lost productivity, health- or stress-related illnesses, absenteeism and delayed retirement.

To combat that, employers are increasingly adopting financial wellness programs and offering benefits aimed at easing the burden of student loan debt to help recruit and retain employees.

One of our services at HANYS Benefit Services is to provide education at the participant level. We help our clients’ employees understand their organization’s retirement plan and help set them up for success.

You can help your employees address their student debt – and save for retirement

Ideally, we’d like to see employees saving 10 to 12 percent of their income, but for many employees struggling with student loan debt, that’s just not realistic. Often, our solution is “save what you can.” This may mean starting at two or three percent, or enough to receive the full amount of any company matching contributions.

You can customize your financial wellness and student loan repayment programs just like you do other aspects of your plans.

For instance, a similar pressure point falls on plan sponsors when administering automatic enrollment. This option auto-enrolls participants at a specified level unless they opt-out. While the ideal savings rate would be closer to 10 percent, that would turn most employees off the program altogether. Instead, we work with employers to establish what is best for their company. This may mean starting at a lower auto-enrollment rate and adding automatic escalation to gradually work employees to a higher rate.

The mindset that encourages employers to adopt auto-enroll may be the very same motivation for those who want to adopt financial wellness and student loan repayment programs. For them, it is simply the right thing to do.

Want more on this topic? Be sure to watch “The monkey on our backs,” episode 1 of the For Your Benefit video series. Also, tune into episode 2 where we discuss a few trailblazing companies are seeking to design creative new employee benefits aimed at tackling the student loan debt problem.

If you have any questions or would like to begin talking to a retirement plan advisor, please get in touch by email or by calling (800) 388-1963.

Popular posts from this blog

SECURE 2.0 Discussion Series: Session One

SECURE 2.0 provisions: What we know and what’s still up in the air The SECURE 2.0 Act, signed into law in late December 2022, has factored heavily in retirement industry discourse since the final legislation was published. As with any legislation of this depth and breadth, there’s a lot to digest and the industry takes time to adjust. Our team of experienced advisors recently met to discuss some of the more nuanced provisions of the legislation, such as changes to Roth contributions, and what they could mean for plan sponsors. Panel participants included the following HBS team members: Noah Buck, Christina Bauer-Dobias, Sean Bayne, Vincent Bocchinfuso and Kathleen Coonan. Highlights of our panel’s conversation below should serve to help guide plan sponsor thinking. On Roth employer contributions NB – In addition to deferring pre-tax or Roth, plan sponsors can now allow employer contributions to be classified as Roth, is that right? VB – Correct. This is immediately available to plan s

COVID-19: Retirement and Benefit Plan Resources

As the COVID-19 crisis continues to unfold, we are closely monitoring news and updates from top sources. We’ll be updating this section as new developments unfold. Here are several key articles and links to help plan sponsors and administrators navigate the COVID-19 impact to retirement and benefit plans: Retirement Plans 4 Key CARES Act Provisions for Retirement Plan Sponsors Markets React to Coronavirus   Important Considerations for Retirement Plan Sponsors during the Coronavirus Pandemic In Fed We Trust Participant Education Services: Timely Help from a Safe Distance CRDs 100% Taxable for New York State and Local Income Tax Purposes in 2020 IRS Permits Remote Notarization of Participant Elections   Employee Benefits CARES Act Expands Health Coverage Rules Understanding the Historic $2 Trillion Stimulus Package Employee Compensation and Benefits During Closures and Furloughs DOL Clarifies Exemptions to Coronavirus Paid Leave Laws Small Business Exemption to

SECURE 2.0 Discussion Series: Session Two

The retirement industry has been buzzing since the SECURE 2.0 Act was signed into law last December. This new, comprehensive legislation has sparked a lot of discussion. As with any major reform, it will take time for the industry to fully adapt and understand all its implications. Following our April 11 webinar on the first three months of the industry’s response, our team reconvened to discuss some of what we have heard from our client and vendor partners and to respond to some of the great questions we heard from attendees. Panel participants included the following HBS team members: Noah Buck, Christina Bauer-Dobias, Sean Bayne, Vincent Bocchinfuso and Kathleen Coonan. The Discussion SB – Throughout the webinar, I wanted to stress two things: 1) confusion about where to start and what is expected from plan sponsors is normal; and 2) even more than three months in, this is a developing situation and people should expect changes as time goes on. With those in mind, engagement through