Why tackling student loan debt will pay off

Millions of American workers carry student loan debt that strains their monthly budgets, leaving little take-home pay for life's essentials — groceries, rent, healthcare — and creating significant financial stress. 

This financial pressure doesn't stay at home but follows employees into the workplace. Our new national research reveals that 55% of full-time U.S. employees believe their employer either doesn't understand the financial pressures created by student loan debt or hasn't taken meaningful action to address it. Meanwhile, 72% of workers say financial stress affects their ability to focus at work.

Many employers underestimate how student loan debt impacts employee focus and performance and the role they can play in alleviating it. If left unaddressed, financial stress can undermine motivation, performance and, ultimately, retention, driving employees to seek jobs that offer higher pay or more meaningful support.

For benefit advisers, this dynamic often sits just beneath the surface in workforce strategy conversations.

An enormous debt burden

American workers carry significant student loan balances across every degree level. Our survey found nearly a third of employed bachelor's degree holders carry more than $25,000 in student loan debt, while master's degree holders cross the $50,000 mark at a similar rate. For PhD holders, a third carry more than $100,000.

Many of these educated workers struggle to keep pace with required payments. Nearly 29% face student debt delinquency, while more than 7.7 million borrowers are already in default. Another one in four borrowers is at risk of the "default cliff," meaning they will likely shift from delinquent to default this year. 

As policy shifts, financial strain is expected to intensify, making paying back student loans even more unaffordable for borrowers. 

Under the One Big Beautiful Bill Act, the most cost-effective income-driven repayment plans are being phased out, new yearly borrowing limits are being imposed and the Grad PLUS loan program is being eliminated. This is happening while administrative wage garnishment is set to resume later this year, mandating employers to collect up to 15% of a borrower's disposable income without a court order.

For millions of borrowers, financial pressures will only deepen, with implications for both workplace performance and stability.

Disrupting productivity

Our research found that employees carry their financial stress into the workplace. More than a quarter (26%) of employees think about student loan payments daily or weekly. Among younger workers, the impact is even more pronounced, with student loan-related stress affecting workplace focus for 84% of Gen Z and 76% of millennials. 

Workplace stress has broad downstream effects on organizational health. According to OSHA, chronic workplace stress reduces productivity, increases absenteeism and harms morale. Financial strain is a significant driver of that stress and the effects show up in performance, collaboration and day-to-day output — growing more acute the longer it goes unaddressed.

For employers, the consequences reach beyond productivity. Employees carrying unmanaged financial stress are more likely to disengage and seek opportunities elsewhere. Many are already doing so, taking on side jobs or gig economy work to manage cash flow. One recent survey finds that more than a third of Americans hold side jobs and 61% say their lives would be unaffordable without the extra income. 

The rise of remote work has made taking on extra work easier to pursue and harder for employers to detect, while the divided attention and burnout it creates follow employees back to their primary jobs.

Left unaddressed, that disengagement becomes a retention problem. Student loan debt is an increasingly visible factor in how employees evaluate their employers and weigh their options. As employees decide whether to stay with their employer, support tied to student loan debt and education benefits is becoming a clear differentiator.

Nearly 80% of full-time workers say student loan support would increase their motivation and 60% say it would influence their decision to stay. Increased retention is seen across demographics, particularly among highly educated workers, younger employees and those earning $75,000 or more.

Simply increasing salaries is often not the most effective way to alleviate the financial strain of student debt, since those extra dollars are immediately eroded by taxes. Instead, employees want targeted support that frees them to pursue other financial goals. For roughly 40% of full-time employees, saving for retirement isn't yet possible because of what they owe. Employer contributions that carry tax advantages, or guidance navigating federal repayment and forgiveness programs, can make a meaningful difference.

How stress is affecting retention

Today's workforce faces record financial stress, while HR departments are tasked with doing more with less. To stay competitive, advisers must help employers pivot toward benefits that deliver a double win: alleviating employee pressure while solving the operational disruption caused by high turnover.

Employers don't need to overhaul their entire benefits strategy to make a meaningful impact on financial stress. A few targeted actions can go a long way toward building a retention strategy that reflects what employees are actually facing. Consider the following:

• A first step to stabilize a stressed workforce is to provide access to expert support to help navigate federal student loan policies. Directly addressing the financial insecurity caused by student loan debt is a high-impact, low-cost way to increase engagement and build loyalty before employees look elsewhere for relief.
• It's also worth examining how education benefits are structured to avoid adding to financial stress. Among employees interested in upskilling, 76% say they'd be more likely to use tuition assistance if costs were covered upfront rather than reimbursed after the fact. Switching to a direct-pay funding model removes the out-of-pocket barrier that prevents many employees from gaining the qualifications needed for higher-earning roles.
• To truly maximize a squeezed budget, employers should look toward student loan repayment assistance. Under current IRS guidelines, employer contributions of up to $5,250 per employee each year are pretax. Because these funds are exempt from payroll and income taxes, they can be worth up to 50% more to the employee than a taxable bonus or salary increase, making this one of the most efficient benefits available within a total rewards strategy.

When designed effectively, student loan assistance and education benefits can directly reduce financial stress, strengthen engagement and promote internal career mobility — giving employees a concrete reason to stay. Ultimately, these programs represent far more than a simple perk; they serve as a pragmatic and high-impact pillar of a modern workforce strategy.