Idaho graduates in 2012 came in slightly under the national average – with 65 percent graduating with an average debt of $26,751.
This is the second highest form of consumer debt behind mortgages and accounts for 6 percent of the overall national debt. While the amounts are growing, so are the default rates. The Project also reports more than 600,000 federal student loan borrowers who entered repayment in 2010 defaulted on their loans by 2012. This is a huge problem for the U.S. workforce and our country.
For employers, the burden of college debt can be a distraction for their workforce, especially Generation Y. Employers are seeking solutions. The federal student loan repayment program permits federal agencies to repay federally-insured student loans as a recruitment or retention incentive for candidates or current employees. Now, private employers are starting to consider programs to help employees consolidate student loan debt as a benefit to attract and retain top talent.
One place they are starting to turn is an organization called SoFi, short for Social Finance. SoFi is a social lending platform that brings together student loan borrowers, alumni and institutional investors. The aim is to help borrowers lower the interest rates they pay and pay back their loans.
With SoFi, employees can consolidate debts from both federal and private sources and borrowers save an average of $9,400 over the life of their loans. Of course, certain eligibility requirements apply, including whether or not an employee lives in an eligible state. So far, Idaho is not an eligible state.
Although employers may not consider this program for all employees at first, it could be something to seriously consider for top talent. For example, 80 percent of MBAs and attorneys graduate with more than $100,000 in debt. If someone is critical to your organization’s success, offering to help with student debt consolidation could be the benefit that makes your employment offer outshine your competitor’s.
Of course, debt consolidation isn’t a comprehensive solution for growing student loan balances in this country. Nationally, policy makers, think tanks, and non-profit organizations are searching for solutions. The Institute for College Access and Success (TICAS) released a report April 14 documenting the trade-offs and challenges of making student loan payments be income driven. Such programs typically call for employers to withhold income-driven loan payments from borrowers’ paychecks. The study finds that while mandatory income-driven payments can make loan payments more manageable for borrowers, it poses challenges for individuals who are not employed, self-employed or work for an employer without the resources to administer the payments.
Student loan debt is not an issue going away for many current employees and those entering the workforce over the next several years. With student debt, employees will be less likely to save for retirement. And they may also be less likely to pursue the kinds of risks required to innovate.
If bogged down in student debt, their financial insecurity could direct them to “safe” business solutions – which don’t always result in business growth and success. Forward-thinking employers should start considering now if there is some way they could help employees address this issue if they want a financially healthy workforce without the burdens and distractions that result from overwhelming student debt.
Michelle Hicks, a senior professional in human resources, is a director in the communication practice of Buck Consultants, a Xerox company.