News broke yesterday that the federal student loan repayment moratorium, which was due to end next month, would be extended until August 31. Despite this last (and fifth) extension, 46 million Americans are still in limbo, still preparing to start paying off a colossal debt of $1.75 trillion in a few months. How employers respond, with the help of their advisers, can be a game-changer and help them earn a overheated talent war.
For employees with student loan debt, August 31 will mark the continuation of a personal finance crisis that has persisted since the start of the pandemic. A recent improvement at work investigation found that 41% of borrowers have been forced into second jobs due to financial instability since the start of the pandemic, and 69% have had to dip into emergency funds. Not only can student loan debt take a toll on employees and their mental well-being, it can also prevent them from achieving other financial goals, like saving for retirement.
As the end of federal assistance looms, our research found that American workers are increasingly turning to their employers for financial advice. For example, 57% of employees believe that their employer helps them pay off their student debt, while 85% of employees with debt would be encouraged to leave their job for an employer offering better financial benefits.
Read more: How to build financial security and savings for low-income workers
This increase in employee expectations is prevalent among new generations entering the workforce who are increasingly saddled with student debt. Additionally, the final months of the Great Resignation have shown that offering a competitive benefits package with student debt relief can be a significant differentiator for employees in today’s tight job market. To stay ahead of the competition for talent and keep current employees happy, advisors should encourage the employers they work with to consider onboarding these offerings.
Student loan assistance can come to life in multiple ways. One option is to implement a student loan management solution that helps employees easily pay off debt, view key loan information, receive personalized recommendations on which loans to pay off first, view repayment projections and more.
Counselors may also suggest that employers set up a student loan matching program. Similar to a 401(k) match, student loan programs can allow employers to match employee contributions and apply those dollars to their student debt, accelerating their debt repayment rate and putting them on the path of financial freedom. The CARES Act gives student borrowers the opportunity to receive up to $5,250 in tax-free student loan assistance through 2025.
Supporting employees with their student loans can be a great strategy for increasing employee retention and retirement plan participation rates. Our survey found that 86% of student borrowers would stay at least 5 years with a company if it helped them get student loans. Student debt is also often cited as one of the biggest barriers to retirement savings. So, by making debt more manageable, employers can help free up employees to start making more regular contributions to their 401(k).
Read more: How Advisors Can Boost Retirement Plans and Capitalize on the ESG Boom
If the Secure Act 2.0which has just been passed by the House, is also approved by the Senate, employers will also be able to meet their employees’ student debt repayments as tax-advantaged contributions to an employee’s retirement plan. This will be a major differentiator for employees who are stressed about retirement planning while paying off college loans. This bill will make it easier to do both at the same time.
Another consideration for employers is to help approach the growing student loan crisis from another angle: by offering financial solutions to parents who are saving for their child’s educational future.
Advisors may recommend an employer-sponsored 529 plan, which is a specialized, tax-advantaged investment account designed for educational expenses. Anything employees contribute to their 529 plan is considered a gift to their beneficiary — usually a child — and some states will even match a percentage of 529 plan contributions from low- and middle-income families. Offering holistic college payment solutions can be a boon for the growing number of parents who are beginning to save for their child’s college education, while continuing to pay off their own student loan debt.
Read more: How Advisors Can Better Meet the Financial Needs of Working Women
The Great Quit has taught us that employers who don’t prioritize financial well-being will be left behind. As the federal student loan repayment moratorium draws to a close and employees increasingly seek out employers who can help them pay off their student debt, it’s time for employers to think about how to offer benefits that meet the growing financial needs of their employees.
In addition to staying competitive, these offerings allow employers to support employees in more than one way: by addressing financial anxiety and stress, building confidence, and helping them prepare for various financial milestones. throughout their life.