Typically, you can find a statistic for anything. Oftentimes, spouters of statistics select only the ones that support their viewpoint. Our world is full of statistics from the meaningful to the mundane. I live in a world of statistics and would not even venture to guess the statistics on how many statistics there are. It seems we’ve replaced the use of great quotes with the use of statistics.
One troubling statistic that I could not ferret out with certainty – now watch, I’ll get a hundred guesses or “answers” – is the percentage of existing student borrowers who never earned a degree. Answering the question is difficult because not all the data is publicly available. However, enough work has been done through surveys of student borrowers to give us a clue, and the results are troubling. According to a survey conducted by the Urban Institute in 2013, one in four student borrowers surveyed did not graduate.
There are about 42 million Americans who collectively owe more than $1.3 trillion in student loan debt. The average student debtor enters the work force owing more than $37,000, a record, according to the Wall Street Journal. The Economist adds that the total amount of student loan debt has more than tripled since 2004. Student loans are the second largest source of household debt in the U.S., trailing only mortgages and exceeding credit card debt and auto loans, according to the Brookings Institute.
The level of student loan debt is a publicly acknowledged concern. This is particularly true in a slow-growing or low-paying job environment. The worst situation student debtors can find themselves in is having to make sizable loan payments when they don’t have that ability. The loan but no diploma – it certainly happens.
Why is there so much student loan related debt? First of all, it was available. Second, it was encouraged by high school and college counselors. Expensive higher education costs required them and, more importantly, you had to have a college degree to get a job, right?
I’m not going to expand on any of those dynamics, but I think with this issue many of us likely believe “the government should do something about this.” It certainly puts a strain on our economy. Student debt burdens – whether the debtor is employed or not – prevent spending, saving, and other expenditures, not to mention the pinch on paychecks.
The interest rates on this $1.3 trillion debt are not low or “cheap” either. The average interest rate on undergraduate student loans in 2015 was about 5%, but some rates are significantly higher. This is very expensive considering today’s low interest rate environment. The “Rule of 70” calculation indicates that debt of 5% doubles every 14 years, and this is not debt you can just duck out of. I have heard cases where such “deadbeats” are handled like robbers, not surprising for an industry where the default rate approaches 20%.
Why are we waiting for the government to fix this problem?
Perhaps smart employers should consider the current situation a means to build employee loyalty or an incentive to attract stronger job candidates. After all, you are starting with a pool of job candidates that are, or have been, credit worthy and are motivated to get a higher education at all cost.
In lieu of a signing bonus, employers should consider offering a low-cost replacement loan for all or part of an employee’s student loans, with loan repayments withheld from paychecks. Any remaining loan balances would be due upon departure or termination. One-time bonuses are often forgotten, but partnering on a life challenge with your employee could win you more than “Boss of the Year.”
Alternatively, employers could offer lower interest rate replacement loans to select employees or those with a certain tenure that can be paid from regular salary. These loans are not taxable income to the employee unless balances are “bonused” out at employer discretion. Employees may be amazed by how much faster a 1%-plus loan can be paid out with similar payments versus a 5% loan. In today’s interest rate environment the employer probably is not earning much on cash balances anyway.
Student loans are the bane of many Millennials. Often referred to as a cynical demographic, I would venture to guess that student loan debt contributes to any attitude that they might have. But it’s not just Millennials – even individuals over 40 years of age account for 35% of student loans outstanding.
Businesses should think creatively about how to attract, incentivize, and maintain good employees, and consideration of a candidate’s student loan debt should not be overlooked. Waiting for a government “fix” is likely pie in the sky due to the taxpayer cost and political debate. Employers should consider the opportunity to build loyalty with good employees or job candidates by thinking creatively about their student loan debt.
