In August 2022, the Biden administration announced an unprecedented slate of student loan updates, including a continuation of its payment pause on federally-held student loans through the end of 2022, as well as a cancellation of student loan debt for $10,000 or $20,000 for qualifying borrowers. Since the announcement, the president's proposal has faced a number of legal challenges, which have dismantled or stalled key components of his plan.
While it's easy to write this off as DOA and therefore not worth giving notice, these developments will inevitably have huge implications for employees – almost 43 million borrowers have student loan debt. That means employees with paused student loan payments will have to resume payments next year, and those that were hoping for tens of thousands of dollars worth of relief may not see it at all.
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Historically, the personal financial issues of employees have not been perceived as a matter employers should concern themselves with – but that's changing rapidly. A recent Bank of America study found that 84% of employers say offering financial tools improves employee retention. As employee expectations continue to rise, employers are grasping that they must evolve too. That means supporting employees' financial wellbeing in ways that go well beyond salary compensation.
There's no doubt that both employers and employees are already shouldering a great deal of economic uncertainty these days. However, with the impending burden of resumed student loan payments on the horizon, more people are turning to employers for assistance. Here are a couple concrete ways employers can execute on this in 2023.
Be a source of timely information
Employers can help employees immensely by sharing trusted communications about student loan updates and upcoming deadlines. There have been a lot of developments in recent months, and staying on top of all the relevant details can be overwhelming.
To start, federal loan payments are set to resume 60 days after a court decision on President Biden's forgiveness program. If no decision has been issued by June 30, 2023, payments will resume 60 days later. This comes after a nearly three-year break on student loan payments. The average monthly student debt payment is $393, a significant amount that borrowers will now need to incorporate into their monthly budgets.
On top of this, some borrowers have had their loans transferred to new servicers during the payment pause. Employers should remind employees to brush up on the details for their loan payments as soon as possible. These details include knowing who their loan servicer is, how much they're supposed to pay each month, and when the payment is due, as well as ensuring the loan servicer has the borrower's proper contact information on file. These seemingly mundane steps are proving valuable in an environment with documented servicer errors amid unprecedented volume.
Then there's the forgiveness plan. While there's still much uncertainty surrounding impending court decisions, if the plan goes into effect, borrowers are still wondering if they qualify in the meantime. Employers can assist their employees in answering this question by directing them to helpful resources, including the Department of Education's subscription page for updates.
Lastly, for nonprofit and public sector employers, reminding employees that Public Service Loan Forgiveness (PSLF) still exists, although the limited waiver expired in October, is one of the best deals out there.
Be intentional about employee financial wellness
Even though individual economic uncertainty and financial anxiety are on the rise, employers are continuing to have difficulty hiring and retaining employees. A recent Labor Department report found that voluntary quitting is still going strong: 100,000 workers left their jobs between July and August.
It's no secret that providing high-value benefits is one of the best ways to attract and keep talent. In fact, a 2022 Fidelity report on top employee benefit trends notes that while 42% of companies provide some form of student loan assistance, that percentage is expected to increase as more employers seek to help employees with their debt once the payment freeze ends.
It's also important to point out that employees really want these benefits: per a recent John Hancock study, 89% of workers expect financial wellness benefits from their employers. Given that roughly 43 million Americans owe a cumulative $1.7 trillion in federal student debt — with the average borrower owing $37,000 — it's understandable why this is the case. Research also shows that these benefits are worth it since employee financial stress leads to decreased productivity, weaker company culture, and higher turnover. One in five employees admit that their productivity has been negatively impacted by their financial stress.
As employees turn to their employers for assistance, employers will be forced to respond. Eighty-four percent of workers want their employers to be more involved with helping them through specific financial challenges, according to Morgan Stanley's 2022 financial benefits study.
And while employers can't magically fix the student loan system or lower college costs for those entering and graduating from school every year, there are certainly actionable steps they can take to support employees to the benefit of their business. Student debt is an all too common American problem, and until we see more comprehensive policy changes, employers will be tasked with being a part of the solution.
Paul Joo is the COO and co-founder of Summer.
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