By Adrienne Way, Edcor CEO and owner
Student debt is a big concern for many people in the US. It is steadily increasing, year over year, and it is the focus of political debate. Even in recent years with record low unemployment, student debt impacts many people. Now, in light of the COVID-19 pandemic, the economic impact of student debt is even stronger.
The effects of student debt are felt in many sectors of American life. People burdened by student debt are less likely to be able to purchase a home or finance a car. They are often unable to save for retirement or afford post graduate studies that could bring career advancement. Many debt holders must delay starting a family. Now, in the midst of a financial crisis related to the coronavirus, those who with student debt face immediate problems. Unemployment is at record-highs and loss of income creates multiple financial obstacles for people with student loans to repay.
The impact of student debt was clear when Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March. Legislators acknowledged the burden student loan payments place on much of the US population. The CARES Act provides suspension of principal and interest payments on federal student loans through September 2020. Those who have student debt will have temporary relief from payments. But the CARES Act only applies to loans from the Department of Education. This is about three-quarters of all loans, but does not include many Federal Family Education Loans and Perkins Loans, or the 8 percent of student loans that are from private lenders. And the CARES Act is only temporary relief from the debt problem.
While policy makers and politicians propose and debate multiple and varied solutions to the student debt crisis, the individuals who are affected, as well as the general economy, would benefit from more immediate solutions. In 2016, almost 70 percent of graduating seniors borrowed to cover the cost of college, at an average amount of almost $30,000. For these student loan borrowers and the economy as a whole, employer education benefits provide a viable solution – specifically student loan assistance. An American Student Assistance survey shows that student loan assistance is a benefit that many employees want their employers to offer:
• 86 percent of employees would commit to a company for five years if the employer helped pay back their student loans.
• 92 percent would take advantage of a match for student loan repayments similar to a 401(k) match.
• 89 percent would use long-term financial planning tools or advice.
• 79 percent would take advantage of free access to a student loan debt counselor.
Employers who offer student loan assistance to their employees will be able to recruit people with knowledge and skills that are necessary for businesses to regain stability after the pandemic. They will be able to retain employees with higher education, who be especially valuable as companies rebuild to maintain their share of the marketplace.
Student loan assistance will also help employers build diversity and inclusion in their companies. Black, Latino and women borrowers would benefit greatly from employer student loan assistance. Eighty-five percent of Blacks who graduated in 2016 used student debt to finance their education. Half of families with Black heads of households age 25-40 have student debt. Latino borrowers fall behind white borrowers in making loan payments, with 30 percent in delinquency and 15 percent in default. All women, especially women of color, have higher student debt than men.
Student loan assistance programs such as Edcor’s Freedom Loan Assistance will be increasingly important as the US recovers from the coronavirus pandemic and the related economic crisis. With Freedom Loan Assistance businesses will be able to recruit and retain employees with valuable skills. They will be able to help these employees contribute to the economy as both producers and consumers. They will also be able to encourage employees to continue their education at even higher levels.
The Center for Responsible Lending states, “Student loan borrowers are the medical personnel providing life-saving care to Covid-19 patients, the school teachers learning to educate their students online, and millions of essential workers who are helping to keep this country running. Many borrowers will also face extended periods of unemployment and lost productivity beyond the six-month suspension period. For many, making regular student loan payments was already a struggle. The national financial impacts of this crisis will only exacerbate their inability to pay.” Student loan assistance is a solution that benefits the economy, employers and individuals.
