By Kaleb Vik
With the final semester of my college career quickly approaching, a new challenge is readily waiting on the other side of the degree. This is a monster that many college graduates have to endure, and absolutely none of those affected can escape. This culprit is the second leading form of debt in the United States, otherwise known as student loan debt.The next financial crisis may be linked to student debt - this is why: Click To Tweet
Hidden Horrors Behind College Degrees
Back in the day, a student could spend the summer months working and often times earn enough to cover tuition for the entire year. Even just a short 15 years ago anyone with a little over $12,000 dollars in their pocket could cover a year’s worth of in-state tuition and fees – with room and board included. Consider these price increases from 2006 to 2016 reported by the Bureau of Labor Statistics:
- 21% increase of overall college costs
- 51% increase for on campus housing (excluding board)
- 63% increase for tuition and fees
That’s frightening to see, especially as a soon-to-be college graduate. When looking at the more than $1.4 trillion in outstanding national student loan debt, some experts worry that it could create the next financial bubble. After all, subprime mortgage lending was at $1.3 trillion in 2007, just before the market crashed, according to a study published by the University of North Carolina at Chapel Hill.
Considering the growth rate of student loan debt, this is negatively affecting not only college graduates, but also the economy as a whole. In the last 25 years median wages have increased 1.6%, whereas median student debt has increased 163.8%. When an individual graduates with a debt amount equivalent to 74.3% of their annual earnings, spending on other items decreases significantly.
This presents an interesting opportunity for businesses looking to recruit young talent. A stipend towards student loan debt offers an advantage to everyone involved, offering students a path to less debt and employers the perk of engaged and loyal employees. Unbelievably, this is a benefit that only 4% of organizations offer in 2017.
If You Offer It, They Will Use It
While this benefit may not seem reasonable for your company, consider the statistics that support it. The vast majority (93%) of employees who received a student loan repayment benefit end up making additional payments on their loans. This is great news, considering it will take less time to pay off the bill as well as a decrease in the amount of interest paid.
There is also a considerable amount of employees willing to pass on basic employer benefits in favor of a student loan repayment option. A few of these basic benefits include:
- 23% said they would give up basic health care benefits
- 33% said they would give up access to retirement benefits
- 43% would give up life insurance benefits
- 46% would give up paid time off
The advantage of this benefit for both employee and employer is something that cannot be ignored. For 53% of recent graduates, financial stress reduces performance at work. This is where paying off your employee’s student debt makes sense economically. Gallup estimates that millennial turnover results in a loss of $30.5 billion to the U.S. economy every year. Want to decrease turnover and increase the productivity of young talent? Offering a student debt repayment benefit might be worth implementing.
Weighing The Options
Interestingly enough, the majority of people (34%) surveyed by Millennial Personal Finance think that an income-driven repayment plan (IDR plan) would be the most helpful way for employers to help students tackle loans.The greatest employee benefit of 2017 that only 4% of companies offer: Click To Tweet
The U.S. Department of Education defines an IDR plan as follows; “An income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable based on your income and family size.” While this type of payment plan can help reduce costly monthly payments, it isn’t the best way to eliminate overall debt. In most cases, the capped monthly payments aren’t large enough to effectively decrease the principal amount when interest costs are factored in.
Fortunately, a very similar number of people (33%) believe a student loan repayment benefit is the most effective way to tackle debt. In addition, student loan refinancing at a lower interesting rate is a useful – and seemingly favorable (30%) – option.
Regardless of these results, it is undeniable that young employees see the value in employers that offer a student loan repayment benefit. If your company wants to attract and retain skilled millennials, consider offering an option to help them pay off their student debt.