Preparing for the end of the student loan payment pause

Yesterday, news broke that the federal moratorium on student loan repayments, which was set to end next month, would be extended through Aug. 31. Despite this latest (and fifth) extension, 46 million Americans are still in limbo, still preparing to start repaying a staggering debt of $1.75 trillion within a matter of months. The way employers respond, with the help of their advisers, can be a game changer that may help them win an overheated talent war.

For employees with student loan debt, Aug. 31 will mark the continuation of a personal finance crisis that has persisted since the onset of the pandemic. A recent Betterment at Work survey found that 41% of borrowers were forced to take on a second job due to financial instability since the start of the pandemic, and 69% had to dip into emergency funds. Not only can student loan debt weigh heavily on employees and their mental wellbeing, it also can make it harder for them to achieve other financial goals, such as saving for retirement.

As the end of federal assistance looms, our research found that working Americans are increasingly looking toward their employers for financial guidance. For example, 57% of employees believe their employers play a role in helping them pay off their student debt, while 85% of employees with student debt would be enticed to leave their job for an employer that offered better financial benefits.

Read more: How to boost financial security and savings among low-income workers

This increase in expectations from employees is prevalent among newer generations entering the workforce that are increasingly dealing with student debt. Additionally, the last several months of the Great Resignation have shown that offering a competitive benefits package with student debt assistance can be a significant differentiator for employees in today’s tight labor market. To get ahead of the competition for talent and keep current employees happy, advisers should encourage the employers they work with to consider incorporating these offerings.

Student loan assistance can come to life in a myriad of ways. One option is to implement a student loan management solution that helps employees easily pay down debt, visualize key information about their loans, receive personalized recommendations on which loans to pay off first, view repayment projections and more.

Advisers also can suggest that employers implement a student loan matching program. Similar to a 401(k) match, student loan matching programs can allow employers to match employee contributions and earmark those dollars for their student debt, accelerating the rate their debt gets paid down and putting them on a path toward financial freedom. The CARES Act gives student loan borrowers the opportunity to receive up to $5,250 of tax-free employer student loan assistance through 2025.

Supporting employees with their student loans can be a great strategy to increase employee retention and retirement plan participation rates. Our survey found 86% of student loan borrowers would stay at least 5 years with a company if it helped with student loans. Student debt is also often named as one of the main factors standing in the way of saving for retirement. So by making debt more manageable, employers can help free up employees to start making more regular contributions to their 401(k).

Read more: How advisers can boost retirement plans and capitalize on the ESG boom

If the Secure Act 2.0, which just passed the House, is also approved by the Senate, then employers also will be able to match their employees’ student debt repayments as tax-advantaged contributions to an employee’s retirement plan. This will be a major differentiator for employees who are stressed about navigating retirement planning while also paying off college loans. This legislation will make it easier to do both at the same time.

Another consideration for employers is to help tackle the rising student loan crisis from another angle: by offering financial solutions for parents saving for their child’s educational future.

Advisers can recommend an employer-sponsored 529 plan, which is a specialized, tax-advantaged investment account designed for education expenses. Everything employees put into their 529 plan is considered a gift to their beneficiary — usually, a child — and some states will even match a percentage of 529 plan contributions from low- and middle-income families. Offering holistic solutions for college payment can be a huge boon to the increasing number of parents who are beginning to save for their child’s college education, while continuing to pay down their own student loan debt.

Read more: How advisers can better support the financial needs of working women

The Great Resignation has taught us employers that don’t prioritize financial wellness will be left behind. As the federal moratorium on student loan repayments draws to a close and employees increasingly look for employers who can help them pay off their student debt, it’s time for employers to think about how to offer benefits that address the rising financial needs of their employees.

In addition to staying competitive, these offerings allow employers to support employees in more ways than one: addressing financial anxiety and stress, building trust, and helping them prepare for various financial milestones throughout their lives.