Student Debt Relief: Questions Employers Face

Designing a student loan program that is broadly fair for all workers

Student debt has been both a prohibiting factor and financial health burden for college-goers for decades. The cost of college has increased 169% since the 1980s, while college graduate pay is up only 19%. This has caused many college graduates and future college students to question not only the value of a college degree, but also the negative impact college debt has or could have on their lives.
 

College debt is the only debt that cannot be discharged through bankruptcy or death, and 81% of adults with college debt have delayed major life milestones, such as getting married, having children, and buying a home. Economists have frequently pointed to student debt’s role in exacerbating racial and generational inequality, and it has served as an anchor on economic growth. In short, student debt is a financial health challenges for students, their families, and our economy.
 
So, when President Biden announced a three-part plan to provide student debt relief, it was generally met with support, especially among younger people. With targeted debt relief and other measures to help tackle student debt, the President’s plan, though certainly historic, raises a series of lingering questions that employers will be wrestling with for years.

A Drop in the Student Debt Bucket: An Enduring Issue for Employees and Employers

Will the President’s debt relief program solve the student debt crisis? The short answer is: no. In the near term, the Department of Education estimates that about 20 million borrowers will see their whole debt balance forgiven under this program. For those individuals, this is a potentially life-changing event. When combined with other student debt relief programs, the relief for working people with college debt is substantial.
 
However, at least one analysis projects that the student debt crisis will reconstitute itself, and we will return to a $1.6 trillion dollar debt burden within four years. Furthermore, even if all federal student debt was canceled today, within 15 years it would return to $1.6 trillion. This points to a deeper structural problem that the relief program does not address: the rising costs of a college degree.
 
For employers, this means that student debt will continue to be a pain point for the workforce. There is no guarantee that future government relief will occur, and the program itself could face legal challenges. As the debt toll spawns anew, employers will remain a key stakeholder in helping workers address the perils of student debt.

Fair Debt Relief

Employers have long struggled with designing a student loan program that is broadly fair for all workers including those without student debt. With fixed budgets that compel them to prioritize where they place their benefit dollars, employers have to navigate tradeoffs in designing their total reward programs.

After compensation, healthcare, and retirement plan contributions, employer budgets may be insufficient to cover the full cost of a student loan repayment program, and still provide additional financial health benefits for the broad needs of workers. There are, certainly, strategies that employers use to address this.
 
One example, the Financial Health Network provides staff with a stipend that can be used to either pay down student debt or contribute to an emergency savings account. Further, Abbott Laboratories also has a program that enables full-time and part-time employees, who qualify for the company’s 401(k) and who contribute 2% of their eligible pay toward student loans to receive a 5% employer-provided contribution to their 401(k) plans, without any 401(k) contribution of their own.

Designing Fair and Equitable Workplace Credit and Debt Programs

Ultimately, student debt will continue to be a reality, and for some, the sole means by which to pay for college. Employers will remain a key stakeholder in helping their workers navigate this challenge, absent comprehensive reform of higher education financing. However, student debt is just one debt challenge – there are other credit and debt issues and challenges workers face.
 
A recent Financial Health Network study found that workers are struggling with a myriad of debts: 91% of workers carry an average credit card debt of approximately $3,000, 54% have car loans with an average debt of $10,000, and 43% have personal loan debt with an average balance of $4,050. This data and insight suggest employers should not just have a student loan strategy, but an overall credit and debt program to support their workforce.
 
When rolling out credit and debt benefits, employers should understand what falls under that umbrella. We define credit and debt benefits as those that help employees avoid borrowing for short-term needs (often at high rates), get them on a path to building long-term assets (like buying a home), and assist them in managing and repaying existing debt (like student loan or medical debt). The contours of these programs will vary based on the needs of the workforce, but having a comprehensive credit and debt strategy for your workforce is one way employers can anticipate the needs workers will have around student debt, design a program that is fair and equitable, and help their workers address the broader credit and debt issues they face.

Author Bio

	As Vice President, Workplace Market Lead at Financial Health Network, Matt Bahl builds relationships with employers committed to advancing financial health for their workforces. He believes it takes a movement to improve workers’ financial lives, connecting HR and benefits leaders with the Financial Health Network’s expertise and solutions to create a strong financial health ecosystem.
	As an Associate on the Workplace Solutions team at Financial Health Network, Riya Patil helps execute research and consulting projects focused on improving workers’ financial health and helping employers design effective financial health benefits and products.