Why Student Loan Payback Assistance Will Be The Next Big Benefit
By Dan Kadlec
March 7, 2018
Student loans are a ripe area where financial educators and corporate human resources departments can make a difference. Yet in both cases they are moving painstakingly slow.
On the education front, a battery of research shows that schools are basically treading water. In its 2018 Survey of the States, a report issued every two years, the Council for Economic Education found almost no movement in the number of states requiring or offering financial literacy classes.
On the employer front, only 4% offer student loan payback assistance as part of their standard benefits package. Here, at least, swifter change seems likely. Leading companies including PwC, a RightAboutMoney sponsor, Aetna and Fidelity already offer payback assistance. More will follow. Private industry generally enjoys fewer roadblocks to policy change and student loan assistance is on the radar.
The number of student loan borrowers has doubled the past decade. Outstanding student debt totals $1.4 trillion. Three in five college graduates have student loans, and they owe an average $28,000. Student loans have the highest rate of delinquency of all consumer debt and delinquency rates have risen every year since 2004, the Federal Reserve Bank of New York found.
This data paints a grim picture of young workers job hunting and heading to the office every day with a consuming fear that they will never get out of hock. That persistent cloud takes a toll on productivity at work and curbs overall economic activity.
Three quarters of recent graduates say they experience daily stress due to their student loans, according to a survey from online financial firms LendEDU and Laurel Road. The survey also found that half of student borrowers are embarrassed by their debt and half would stay in a job they hate just to keep current on their student debts.
Of note to employers: 71% of recent college grads say a student loan benefit would be important in considering any job change; 58% would rather have payback assistance than additional vacation days.
To put this burden into perspective, consider that the average monthly payment on a recent graduate’s student debt is equal to half their monthly mortgage or rent, and it consumes 15% of their monthly take-home pay, LendEDU and Laurel Road found. Consider further that half of young adults with loans only vaguely understood the terms when they signed up and 12% had no idea what they were getting into.
The largely unexpected burden of these loans has recent graduates cutting back in many areas of spending, including:
TV, cable and other content (48%).
Eating out (72%
Going out (47%)
Movies and concerts (54%)
Gym membership (36%)
New clothes (39%)
The burden of these loans also has led young workers…
• • •
…to put off life events:
Getting married (30%)
Starting a family (31%)
Buying a pet (26%)
Saving for retirement (44%)
Buying a house (50%)
Millennials are accumulating massive liabilities. Some 70% have at least one source of long-term debt and 34% have two, according to the National Endowment for Financial Education. To make ends meet, a quarter of Millennials have raided their retirement savings and another quarter are overdrawn on their checking account. A similar percentage is under water on their home, late with mortgage payments and have unpaid medical bills.
Young people increasingly understand the financial hurdles in front of them and are insisting on financial guidance as well as direct assistance, like loan payback. Employers should listen if they want to attract and keep the best young workers.
For educators, this is a call to arms. Schools can make a big difference just by preparing students to navigate college borrowing—how much makes sense, which loans are most attractive, how to refinance, and how to pay back efficiently.