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How The Exponential Growth Of Student Loan Debt Will Continue To Impact Your Workforce

Student loan debt impacts about 43 million adult Americans, and one-third of adults between the ages of 25 to 34 currently has a student loan, according to the Center for American Progress. The Wall Street Journal  estimates that the average borrower holds about $34,000 in student loan debt. While the types of outstanding student loans they carry skew more heavily to federal student loans than those issued through private lenders, student loan debt has proven to be more than many borrowers can handle. According to The Wall Street Journal, more than two million borrowers have defaulted on their loans in the past six years, and the number of student loan borrowers in default grows by 1,400 a day.

Directly and indirectly, student loan debt impacts employers. In PwC's 2019 Employee Financial Wellness Survey, nearly 60 percent of respondents ranked financial concerns as the biggest source of life stress. When employees are facing financial pressures, they may become disengaged, be absent more frequently, or seek new jobs they perceive as having better pay or benefits than their current role. Employees with student loan debt need help, and PwC says that today's employees increasingly look to their employer to provide it.

Here's a closer look at why student loan debt has become such a prevalent issue for employees and employers, and what it means for your current and future recruitment and retention strategy.

How the Cost of College Has Increased Over the Years

For the 2019–20 academic year, estimated annual current dollar prices for undergraduate tuition, fees, room, and board were $21,950 at public institutions, $49,870 at private nonprofit institutions, and $32,363 at private for-profit institutions. While many Americans have come to accept the high price tag that comes with a college education as unavoidable, that wasn't always the case. In fact, data from the U.S. Department of Education indicates that undergraduate tuition, fees, room and board at public institutions rose 31 percent between 2006 and 2016. In that same time frame, the costs to attend private nonprofit institutions rose 24 percent, after inflation.

But what factors led to these cost increases?

Factors that Contributed to the Current Student Loan Crisis

The Wall Street Journal explains that the current student loan debt reality originated with the passage of The Higher Education Act of 1972, which made the government’s role in guaranteeing student loans made by private banks permanent and also led to the creation of Sallie Mae. This jump-started the student loan market, which bought student loans from banks. In turn, banks had more resources to issue private student loans. Because there were now so many borrowing options, colleges could increase the tuition for students.

The situation worsened as the U.S. fell into a recession in 2007. Jobs were hard to come by, so more people opted to go to college, or to pursue a graduate degree in the hopes that it would lead to employment. The Wall Street Journal says the emergence of income-based repayment programs in 2009 further contributed to the student loan debt problem the country collectively faces today. While intended to make college accessible to all students regardless of their financial situation by setting monthly payments at 10 percent of the borrower's discretionary income and providing the option for loan forgiveness of some debt after 20 to 25 years of payments, borrowers no longer thought of college as cost-prohibitive. This gave colleges the freedom to raise tuition even further.

How Stagnant Wages are Deepening the Crisis

On top of the cost of college, most Americans haven't seen their wages rise over the last decade. In those rare cases where wages have increased, the benefit has mostly gone to workers in the highest paid tier of employees. The Economic Policy Institute reports that the college wage premium only rose from 47 percent to 48.4 percent between 2008 and 2018. Further, it took nearly a decade for workers with some college to reach their 2000 wage level post-financial crisis.

There are a number of theories behind the drivers of this wage stagnation, according to Pew Research Center. Some believe that employer-provided health insurance has halted employers’ ability or willingness to raise cash wages are to blame. Factors like the continuing decline of unions, non-compete agreements, and similar restrictions on job-switching are also named as factors by some economists. Broad employment declines in manufacturing and production sectors and a consequent shift toward job growth in low-wage industries are also thought to have contributed to wage stagnation.

Regardless of the drivers, the impact of wage stagnation on borrowers is clear: Forty percent of people with student loan debt are expected to default on their loans by 2023, according to The Brookings Institute.

How Employers Can Improve Student Loan Debt Burdens

Employers need to determine what they can do to help employees solve the financial challenges college has created for their financial lives and will potentially create for their children. Programs that encourage employees to contribute to a 529 college savings plan while educating employees on budgeting, saving for college, and borrowing can empower employees to make wise financial choices. In addition, understanding the needs of the workforce by implementing contribution benefit programs like those offered by Gradifi can support employees and serve as an important recruitment and retention tool that serves the employer as much as it does the employee.

In fact, the Society of Human Resource Management (SHRM) reports that recent college graduates or those who will soon graduate rate student loan repayment assistance among the top three benefits an employer can offer, outranking the ability to work remotely, having an employer-sponsored 401(k) retirement plan, and paid parental leave. Now, 8 percent of organizations offer taxable contributions to help employees repay student loans, up from 4 percent from 2016 through 2018, according to SHRM's 2019 Employee Benefits survey results. In order to get ahead of the potential growth of student loan debt, the time to act is now.

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The material provided by E*TRADE Financial Corporation or any of its direct or indirect subsidiaries (E*TRADE) is for educational purposes only and is not an individualized recommendation. The information contained in the material neither is, nor should be construed as, an offer or a solicitation of an offer to buy, sell, or hold any security, financial product, or instrument discussed herein or to engage in any specific investment strategy by E*TRADE.

The E*TRADE Financial family of companies provides financial services, including trading, investing, banking, and managing employee stock and financial wellness benefit plans.

E*TRADE Financial Corporate Services, Inc. recently acquired Gradifi, Inc. Gradifi offers financial wellness benefits focused on solutions for employers to provide their employees student loan and college savings benefits.

E*TRADE Financial Corporate Services, Inc. and its affiliates do not provide legal, accounting or tax advice. Please consult your own legal, accounting and tax advisors.

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The material provided by E*TRADE Financial, LLC or any of its direct or indirect subsidiaries (E*TRADE) or by a third party not affiliated with E*TRADE is for educational purposes only and is not an individualized recommendation. The information contained in the third-party material has not been endorsed or approved by E*TRADE, and E*TRADE is not responsible for the content. This information neither is, nor should be construed as, an offer or a solicitation of an offer, or a recommendation, to buy, sell, or hold any security, financial product, or instrument discussed herein, or to open a particular account or to engage in any specific investment strategy by E*TRADE.


The E*TRADE Financial family of companies provides financial services, including trading, investing, banking, and managing employee stock and financial wellness benefit plans.


E*TRADE Financial Corporate Services, Inc. acquired Gradifi, Inc. Gradifi offers financial wellness benefits focused on solutions for employers to provide their employees student loan and college savings benefits.


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