New Study Looks at Student Debt and the Workplace

Student debt has reached an astounding $1.7 trillion in the United States, creating a significant burden for employees nationwide. This financial weight affects employees’ personal lives and has far-reaching consequences in the workplace. A number of studies have examined the connection between student loans, financial well-being, and organizational outcomes, and a new paper by the nonprofit organization Commonwealth adds to that body of research.

In their latest report, The Hidden Burdens of Student Debt & The Potential of Employer-Provided Solutions, Commonwealth, with the support of the W.K. Kellogg Foundation, explicitly examines the impact student debt has on workers who are earning a low to moderate income (LMI). To do so, the team surveyed more than 600 American workers with incomes between $30,000 and $75,000.

The paper highlights the financial and psychological toll of student debt on LMI employees, along with the innovative solutions employers are implementing to address this pressing issue. Here’s a closer look.

Understanding the Scope of Student Debt

The burden of student debt in the U.S. has reached staggering proportions, posing significant challenges for millions of individuals. Student loan debt is now the second-largest consumer debt category, trailing only mortgages. This immense debt burden affects individuals’ personal finances and has profound implications for the workplace.

The average student loan debt per borrower has climbed to over $30,000, reflecting a persistent rise in the cost of higher education. This financial weight disproportionately impacts certain demographics, including women, borrowers of color, and first-generation college graduates. These groups often face systemic barriers that hinder their ability to repay their student loans, leading to higher default rates and prolonged financial hardship.

The Impact of Student Debt

Commonwealth found that approximately 60% of LMI borrowers report stress and emotional challenges due to their debt, affecting their personal lives and workplace productivity. The group also cites previous research indicating that financial stress causes employees to spend three or more working hours each week dealing with personal finance issues, leading to an estimated $250 billion in lost productivity annually.

Student loan repayment often takes precedence over other financial goals, hindering short-term savings and retirement investments. For example, 77% of respondents said their student debt payments made it difficult to save for emergencies, and 72% said it made it difficult to contribute to their retirement plan.

Student debt impacts organizations in other ways: 19% of respondents stated they’ve tried to leave their job for another that offered higher pay or better workplace benefits due to their student loan debt.

Recommended: How Student Loan Benefits Can Help Retain Employees

Employer-Provided Solutions

There is a strong interest in employer-provided financial benefits, with 60% of respondents selecting student debt relief as a desired benefit. Direct loan payment assistance programs and retirement matching programs were the most preferred types of employer assistance. Thanks to recent legislation, including the Secure 2.0 Act and the CARES Act, a growing number of employers are offering one or both of these programs.

In addition to the numerous benefits that student loan repayment assistance provides employees, it also offers several advantages to employers. Implementing this type of benefit can significantly reduce employee turnover and increase retention rates, as employees are more likely to remain loyal to a company that actively supports them in managing their student loan debt.

Moreover, offering student loan repayment assistance as an employee benefit can significantly enhance an employer’s brand and reputation. In today’s competitive job market, potential candidates are drawn to companies that prioritize their employees’ financial well-being.

Recommended: How Does an HR Team Implement a Student Loan Matching or Direct Repayment Benefit?

Section 127 and Direct Student Loan Payment

To be eligible under U.S. Code § 127 – Educational Assistance Programs, a direct student loan payment plan must be documented in writing and fulfill certain criteria. These programs aim to aid employees in advancing their education by covering costs like tuition, qualified education loans (as outlined in section 221(d)(1) of the Code), fees, books, and supplies.

Crucially, these programs offer a tax-free benefit of up to $5,250 per employee per calendar year. This means that any benefits provided within this limit are not counted as part of the employee’s gross income or reported as wages on their Form W-2.

Organizations such as Athletico Physical Therapy now offer such benefits, acknowledging the dual benefit of assisting employees with their student loans while attracting and retaining top talent in a competitive job market.

Secure 2.0 and Qualified Student Loan Payments (QSLPs)

Broadening the scope, the Secure 2.0 Act, which took effect in January 2024, allows employers to match their employees’ student loan repayments with contributions to their retirement plans. Companies such as Chipotle and Kimley-Horn have embraced this forward-thinking strategy, enabling employees to manage their student loans while boosting their retirement savings. This approach creates a mutually beneficial situation for enhancing financial wellness. The IRS has recently provided guidance on how to administer this benefit.

Takeaway

Commonwealth’s recent findings provide insights for employers on how student loans affect their employees’ financial situations and highlight the types of workplace benefits that employees value to meet their needs. Offering benefits that alleviate the stress of student debt is a strategic approach for employers to attract and keep skilled workers while enhancing their financial well-being.

SoFi at Work can help. We’re experts in the employee education assistance space. With SoFi at work, you can access platforms and information that will help build the benefits needed to create a successful and loyal workforce.

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Photo credit: iStock/Delmaine Donson

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