After paying monthly student loan minimums, many Americans have just enough to cover basic living expenses. As a consequence, when unexpected expenses arise, they often end up defaulting on their student loans.
It’s no wonder that student loan debt is a top financial stressor for so many. There’s good news, though. Not only can employers help employees with student loan debt, but doing so is in everyone’s best interest. Here’s how.
A growing number of employees are entering the workforce with student loan debt. About 43 million adult Americans carry a federal student loan and as a whole they owe $1.5 trillion in federal student loan debt. Americans also owe an estimated $119 billion in student loans from private sources not backed by the government, according to the Center for American Progress.
Experts say that this debt is causing anxiety and a distracted workforce, with many people spending hours of their workday wondering how to meet financial commitments. A majority of those with student loan debt report being worried about paying off their student loans, according to research reported by the University of Missouri in an October 26, 2018 article on their website. That research also found a strong link between student loans and mental stress for borrowers.
According to research, those with student loans say that getting help with refinancing or repaying their loans would ease their stress so they can focus on their job. When such assistance is offered, employees appreciate that their employer cares about their financial well-being, and ultimately becomes more engaged and involved in the success of the business.
Some may wonder whether refinancing is worth their time and effort, but research shows that many people who take out student loans have a high interest rate. On average, borrowers take 20 years to pay off their student loan debts. Instead of continuing to pay a high rate for the lifetime of the loan, employers can work with education benefits providers to direct employees toward private refinancing options. Saving a small amount each month can substantially lower the total cost paid over the life of the loan.
Employees are likely to appreciate having the option to refinance loans as well as receive education and financial advice from their employer, say experts. Supporting employees’ financial health is a great way to increase employee loyalty and engagement.
Avoiding Loan Default
Nationally, the default rate on student loans is increasing. In 2018 alone, student loan delinquencies amounted to over $166 billion.
Missed payments can affect someone’s credit score for years. It can also affect career opportunities as some employers are now checking candidates’ credit scores before making job offers. If people receive advice on refinancing their student loans or receive repayment assistance from employers, they’ll be more likely to make their monthly payments and less likely to deal with the consequences of a poor credit score.
The views of the author of this article do not necessarily represent the views of Gradifi. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained here. Readers should consult their own attorneys or other tax or financial advisors to understand the tax, financial and legal consequences of any strategies mentioned in this article.