Does it seem like more grads have more student loan debt than ever before? That’s because they do.
According to a recent report from the Consumer Financial Protection Bureau (CFPB), the percentage of student loan borrowers owing $20,000 or more at the start of repayment has more than doubled since 2002. On top of that, many grads are waiting longer to start repayment, and taking longer to pay off their student loans.
With many younger workers wringing their hands over student loan debt, and employers wondering how to attract top millennial talent, there’s an opportunity. What if more companies offered student loan repayment benefits — and the government offered a tax benefit? Here’s why a rise in graduates with more student loan debt should motivate employers to offer student loan repayment benefits.
Why do so many people have student loan debt?
Gone are the days when someone could work for a summer and cover tuition for the entire year. According to the Bureau of Labor Statistics, the Consumer Price Index for college tuition and fees increased 63 percent between January 2006 and July 2016. Compare that to an increase of 21 percent for all items — and that’s just tuition and fees. Housing at school (excluding board) increased 51 percent.
That’s a pretty big jump over 10 years. College Board tracks changes in average tuition and fees over time. In 2001-02, the average public four-year, in-state tuition and fees plus room and board was $12,245. The average cost for the 2016-17 school year? $20,092.
No wonder the CFPB reports that more than 40 percent of student loan borrowers leave school owing $20,000 or more. Just paying for one year of school costs that much. The number of borrowers owing $50,000 or more upon leaving school tripled between 2002 and 2016. There’s a reason some experts are worried about a student loan bubble.
Graduates feel the pinch of student loan debt
It’s no surprise that graduates are feeling the pressure. A Student Loan Hero survey found many Americans with student loan debt put off key financial and life milestones as a result of their student loan debt.
Millennials also cite “too much debt” as their number one money stress. Student loan debt is the second-most stressful type of debt they carry (after credit card debt). Add in the fact that wage growth — even for those with a college degree — has been largely stagnant in recent years, it’s not hard to see why millennials struggle.
And it’s not just millennials suffering as a result of this situation. The combination of rising college costs, higher student debt, and stagnant wages has also contributed to student borrowers waiting longer to pay off debt. The CFPB report found that half of student loan borrowers are older than 34 when they start repayment. Plus, the percentage of consumers beginning repayment under 25 has decreased from 30 percent to 15 percent.
Finally, 30 percent of borrowers are not paying down their loan balances after five years in repayment. “[E]ven if borrowers are making payments, those payments are not enough to cover the interest on their loans. Therefore, the amount of principal is the same and the overall amount of debt is the same or more,” said the CFPB in its press release.
All of this represents an opportunity for employers to step in and help their workers pay down student loan debt.
Companies that pay off student loans attract and retain talent
It’s clear that their financial situation stresses American workers — for 53 percent of them, that stress gets in the way of work performance. On top of this productivity issue is the worry about turnover as millennial talent is difficult to retain. Polling organization Gallup estimates that millennial turnover results in a loss of $30.5 billion to the U.S. economy every year.
Employers looking to retain millennial talent and increase worker productivity can offer student loan repayment benefits. Offering these benefits can provide companies a way to reduce financial stress related to student loans, and encourage millennials to stay.
However, companies have been slow to adopt student loan repayment benefits. According to the Society for Human Resource Management, only 4 percent of employers offer financial aid to help employees repay student loans. This represents a huge opportunity for employers who want to stand out in the competition to attract millennial talent.
How to motivate employers that don’t offer student loan repayment benefits
The government can even help if Congress passes a law to provide companies with a tax benefit for offering student loan repayment benefits. Currently, a bill meant to extend tax exclusion to employer-provided student loan payments languishes in the House of Representatives without moving forward.
Even though there isn’t an extra tax break for this benefit, there are some companies that pay off student loans. Student loan borrowers looking for help with their student loan repayment can consider these employers, which include powerhouses Fidelity and PricewaterhouseCoopers, as well as fintech startups such as Student Loan Hero and SoFi.
Whether you are a business owner or a student loan borrower, consider contacting your elected officials to encourage them to help borrowers and employers alike by passing bills that provide tax breaks for student loan repayment benefits.
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