The Student Loan Debt Crisis and Its Impact on HR
It’s no secret that today’s students carry a massive burden — many graduate with student loans of some kind. As interest piles up, the payments last longer and cost more and more.
How bad is the debt crisis around the world? More specifically, what does it mean for these future employees and the human resources departments who hire them? Read on to find out.
The Debt Crisis by the Numbers
In the United States alone, 44 million people have accumulated some student loan debt, according to 2019 statistics. Together, they owe a staggering $1.5 billion, making the student-loan industry second only to the mortgage industry in terms of the amount of money owed by borrowers. The average graduate of the class of 2017 owes just over $28,000.
Of course, that’s just the United States — student loans affect pupils around the world. In June of 2018, the U.K.’s House of Lords revealed that their country’s amount of student loans could also tick up to a number higher than £1 trillion, although it would take them a quarter-century to match the debt currently owed in the U.S.
A big problem in the U.K. is the high interest rates students pay on their loans — a borrower typically pays back more than 6 percent interest, although the government borrows the money at around a 1.5 percent interest rate.
Human Resources’ Role
Human resources departments will eventually play a big part in helping college graduates pay off the money they owe. As of November 2018, only 4 percent of American employers had programmes in place to help their employees in such a situation. Eight percent of big-name employers offer similar programmes to boost their staff’s ability to repay.
Employers can help students tackle debt in myriad ways. They can directly funnel a set amount of money each month into their employees’ loans, although this is sometimes difficult — some staffers might feel left out if they don’t need assistance and therefore receive fewer kickbacks from the company. A great way to resolve this issue is to provide both debt relief and a 401(k) matching programme so everyone has an option that will help them.
HR might also purchase resources for their staff so they can better tackle the task of repaying their loans. For instance, some companies will offer access to a refinancing tool. You might also consider a virtual evaluator of their expenses, income and best spending habits — that way, more money can go into paying down the loan.
Why It’s Important
Some employers might find it difficult to see the benefits of such a programme — why should you pay off your staff’s loans?
For one thing, research has revealed that 86 percent of employees would stay with a job for at least five years if the company helped them with their loans. As any HR rep would know, the lower a company’s turnover rate, the better it runs. There would be less training and lower costs for onboarding new hires. With great benefits, staffers tend to be happier and more satisfied, too.
To that end, surveys and studies have found that the thought of student loans can be distressing for young people who have them. For 80 percent of adults with such lingering loans, they cause “significant” to “very significant” stress. Loans also get in the way of people enjoying their life — no vacations or home-buying or splurging on a shopping trip or car-shopping.
Again, this is upsetting to those under financial strain. It’s easy to imagine how this type of stress and dissatisfaction would affect an employee’s work ethic and quality.
Stepping in to help your employees pay off their loans can reduce their strain and help them out of the red, however slowly they do it. As they de-stress and gain financial control, you’ll find your workforce sticks around longer and works more happily and more efficiently. Those two benefits alone make the payments worth your while.
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