40% of student loan borrowers are missing payments

40% of student loan borrowers are missing payments. 3 ways employers can help

January 3, 2024 3:52 PM

A young Black woman looks at her laptop in frustration.

In theory, student loan borrowers already have three monthly payments on the books — but in reality, some borrowers just aren't paying up since payments resumed in October 2023.

According to the Department of Education, nearly 40% of student loan borrowers with their first deadline in October did not make payments by mid-November. Today's average monthly loan payment of $210 to $314 equates to a 4-5% pay cut for the typical worker, meaning many borrowers simply cannot afford to meet payments. On TikTok, Gen Z borrowers are speaking out about sharing plans to boycott payments altogether, even at the risk of default and garnished wages.

"This is a very confusing and difficult time for millions of people who haven't necessarily made a loan payment in the last three years," says Aaron Smith, co-founder of Savi, a platform dedicated to helping borrowers manage their student loan balances. "Employers need to understand this is one of the biggest financial challenges their employees face."

As federal debt forgiveness feels increasingly unlikely, employers seem to be aware that they're next in line to provide support. In just the last few months, Savi has seen a 66% increase in employers electing to offer student loan benefits, and Smith is confident that number will only go up in 2024. But do employers know what form their benefits should take? Smith breaks down three things employers should know before they tackle student loan debt.

Contributions count

If employers have the means to reduce monthly payments or debt balances, it can make a world of difference. Notably, the SECURE Act 2.0 potentially makes this even easier by allowing employers to make matching contributions to loans, just as they would with 401(k) contributions. Now officially in effect, the SECURE Act 2.0 is bound to be on employers' radars, and Smith recommends employers soon decide if this is the right contribution vehicle for their company.

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"Employers have a real opportunity to address one of the biggest financial needs of their employees," says Smith. "And this is really the perfect time to do it because payments are resuming, and it's already a very acute problem for many employees."

Educate employees on their options

Smith reminds employers that, unlike other forms of debt, federal student loans come with opportunities for forgiveness and monthly payment reductions. If employees have the right resources at their disposal, they can identify whether they are eligible and successfully apply for programs like President Joe Biden's SAVE plan or public service loan forgiveness. This not only means employees are paying less — potentially nothing at all — but employers who are contributing to those employees' monthly payments can save, too.

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Whether employers offer a digital resource like Savi to help workers navigate their debt, or provide advisers, it's crucial for employees to know whether they can take advantage of federal assistance before they put years into trying to meet payments, says Smith.

It’s a matter of financial wellness

Like healthcare coverage and retirement plans, student loan benefits are vital to an employee's ability to save and weather financial emergencies, emphasizes Smith. Borrowers may be stuck with monthly payments for 20 years, as interest keeps their balance high even after they paid a majority of their principal. This hinders an employee's ability to invest in their health, retirement, home and family.

Smith advises employers to consider student loan benefits a critical component of their financial wellness offerings. Whether the benefit is an employer contribution, loan education and navigation, or both, employees should find it easy to access, understand and track progress — like what's ideally expected of retirement plans.

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Smith predicts that student loan benefits will become an increasingly

table-stake offering and urges employers to get ahead while they can. It may be what puts companies over the edge in another potentially tough year for hiring.

"You cannot neglect one of the major financial challenges employers face," he says. "If you can say to a potential or current employee, 'We get it, student loans are a huge issue for you, and that's why we are contributing to help you pay that off,' that can be impactful in terms of getting the best talent or retaining your existing workforce."