According to recent statistics from the Federal Reserve of St. Louis, college graduates in the United States collectively owe more than $1.5 trillion in student loan debt, with an average of $32,731 per borrower. In 2018, 70% of new graduates carried a substantial amount of debt as they entered the job market.
Many graduate workers nationwide are feeling the effects of steep monthly payments from high-balance student loans. Struggling to pay off loans can create an enormous amount of stress, and workers stressing over student debt may find that it carries into the workplace, affecting their productivity.
The solution is to finish student loan repayment, but where can they turn for help? The HR department might be another decent place to start. Student loan repayment benefits are part of a newly adopted trend where employers contribute to employees’ monthly payments. It’s growing in popularity as Millennials begin to comprise more and more of the workforce, and it provides benefits to both the employer and worker.
Let’s take a look at a few of the reasons student loan repayment benefits should be included in compensation plans for new employees.
Improves Employee Retention
Student loan repayment benefits are an effective employee retention tool. Many young workers are constantly looking to find new opportunities in their careers, and one of the drivers behind this is the need for greater income. With high student loan payments, the need to make more money can push employees away and drive turnover rate. However, a student loan repayment benefit may incentivize certain workers to stick around.
With monthly contributions from the company, employees are more likely to stay at their current jobs. The benefit can help them manage their student debt, and they can even pay it down faster by making additional payments on top of the contribution.
Reduces Stress For Employees
If monthly student debt payments claim a large chunk of income, recent graduates may find themselves struggling to meet rent and other costly living expenses. The problem gets worse if they’re trying to save or invest their money as well. Lack of financial stability usually leads to increased stress, which can greatly impact workplace productivity as well as moral.
A survey from Willis Towers Watson revealed that 31% of employees believe money concerns affect their work, and 74% feel daily stress about their student loan debt and worry about it while in the office. Furthermore, the same survey found higher rates of absenteeism from employees struggling with money.
By alleviating the stress caused by student debt, companies can give employees a little peace of mind and help them to do their best work.
Aids Employee Recruitment
This benefit can help retain employees, but it can also help recruit employees. In the current landscape, graduating students looking for first full-time jobs are forgoing traditional benefits for help with student loans. Extra time off used to be an important bargaining topic for new hires, but a survey from Laurel Road and Lendedu found that 58% of Millennials now say they would trade vacation days for assistance with their student loans.
The student loan repayment benefit is an effective recruiting tool because it is tailored to the specific needs of the growing Millennial workforce. According to that survey, they prioritize paying off their debt over going on vacation. Companies can take advantage of this mindset, helping both parties involved at the same time. Maybe it can be added to this list of HR recruitment strategies.
It’s Relatively Cheap
The majority of salaried personnel receive partial or full health coverage through their employers, but how does that company expense stack up against student loan support? Compared with the average annual cost per employee for health benefits, The amount employers can expect to shell out for a student loan benefit is insignificant compared to the average cost of annual health benefits per employee.
Employers pay on average $5,179 per year to cover health insurance for a single employee or $12,591 for a family. Companies with student loan repayment benefits offer between $1,200 and $2,400 annually. Many companies cap overall contributions at $10,000, reducing overall cost.
It’s a relatively modest financial commitment compared to the cost of other more common benefits. Taking this into account with the benefits associated with employee recruitment, retention, and productivity makes a great case for offering a student loan repayment benefit to employees.
Benefits Are Expanding
Starting with this benefit can also lead to other ways to support employees with student debt. Some employers have the option to partner with companies, such as Laurel Road, to offer access to student loan refinancing. Student loan refinancing allows borrowers to pay off their old loans using a new private loan. After refinancing, borrowers pay off one loan with a new interest rate and repayment term. Qualifying for a lower interest rate may save money over successful repayment.
When taken advantage of correctly, refinancing may be an effective way to reduce what you own in interest. However, the application for refinancing student loans is difficult to qualify for, and securing a lower interest rate may also be hard. Applicants are required to have great or excellent credit as well as high income. By partnering to offer access to refinancing, employers may help workers overcome this barrier, save money, and pay off their loans faster in the process.
Having the support of employers can be invaluable to individual financial security in general, and helping with student debt is a great way to expand employee benefits. The student loan repayment benefit is a low-cost investment that could reap huge benefits in recruiting and retaining high-value prospects. On top of this, many more companies are starting to open up to the benefit, so it may be worth considering in order to stay competitive in recruiting.
It can help employees with their productivity and stress levels, especially young employees who are struggling with finances. Furthermore, helping your employees can open the door to new benefits such as the student loan refinancing benefit. All in all, it’s worth considering this benefit given the changing needs of the workforce.
Andrew Rombach is a Content Associate for Lendedu – a website that helps consumers and small business owners with their finances.