Student loan debt is now higher than both credit cards and auto loans in the consumer debt category, second only to mortgage debt.
With interest rates ranging anywhere from 5 percent to 14 percent, graduates are stuck repaying loans for degrees they earned nearly two decades ago.
This repayment burden can delay adult milestones such as home purchases, marriage, and parenthood in addition to delaying retirement and crippling older generations who need to cover increased healthcare costs. Also, the massive amount of student loan debt can harm both the mental and financial well-being of many employees — costing real dollars in lost productivity, and increased healthcare costs for the employer.
Approximately 44 million people in the U.S. are weighed down by student loan debt totaling nearly $1.5 trillion with each loan averaging $37,000! So, how did we get to this point?
Skyrocketing college tuition costs
College tuition costs have risen exponentially in the last century. The increased expense directly correlates with the number of students choosing to attend. Student populations grew with an increase in accessibility for women, racial integration and cost assistance legislation throughout the 20th century; but the greatest impacts appear in the early 2000s. In 2007, George Washington University became the first college to raise tuition over $50,000. In 2008, college inflation rose to a staggering 439 percent versus income at 147 percent over the same 26-year period. This year, we see the most expensive universities charging around $54,000 for tuition; room and board brings total costs to $70,000 per year.
Even though the largest increases occurred in the last 20 years, loan debt is not only a problem for the Millennial generation (born from 1981 to 1999) but also affects most all of the five generations in the workforce today.
Baby Boomers and Gen X taking on more student loan debt
AARP conducted a study in conjunction with the Association for Young Americans. The results show that 34 percent of Generation X and 12 percent of Baby Boomers have student loans for themselves or someone else like family members. Most surprising, loan debts rose in the 60 – 69 age group more than any other between 2013 and 2017.
The study shows that retirement planning is delayed across all age groups due to student loan debt — affecting retirement age as millions miss out on compounding interest in preparation for retirement. Health costs inextricably tied to an aging population unable to afford to retire will impact the economy in unforeseen ways. With little relief in sight, there is a definitive advantage for employers to attract and retain talent by offering loan assistance benefits.
Student loan assistance could be the new 401K
Despite the fact that Forbes described student loan assistance as the, “Hottest Employee Benefit of 2018,” only 4 percent of employers have introduced varying types of assistance programs. However, that number is expected to increase should a bill making the benefit tax deductible be approved by Congress. With unemployment at an all-time low, such programs differentiate benefits among competitors seeking the same talent.
Programs structured similarly to 401Ks pay a set amount directly to the loan holder monthly while employees continue to make their same payments. Considering interest, the additional monies going straight toward principle can shave years off loan repayment — an attractive outcome for debtors who identify five- and six-figure loan balances as a high source of stress.
Employee financial instability can greatly affect employers
Employers continue to seek different arrangements to aid indebted employees facing 50 – 75 percent more financial instability than those without loans, not to mention how one million people defaulting on their loans every year hurts the entire economy. Employers may also be sustaining themselves, as economists argue the high debt ratios result in more conservative spending habits crippling consumer demand for goods and services.
It is clear that student loan debt effects are more far-reaching than individuals’ financial security, but society as a whole is beginning to “pay” for those high cost degrees as the consumption required to drive capitalism dwindles every year.
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