An alarming statistic regarding debt in this country has jumped off the pages of countless newspaper business sections over the past year. Student loan debt now exceeds credit card debt in the United States.
At first glance, it might not seem like a topic that employers should focus on or one they can even do much about with respect to their benefit offerings. But failure to act, or at least recognize that the issue exists in an organization, can have detrimental effects across a workforce struggling with what can ultimately be a crippling financial burden.
The Consumer Financial Protection Bureau estimates that student loan debt has now topped the $1 trillion mark, with various estimates placing the average debt owed at around $25,000. Credit card debt, by comparison, totaled just under $700 billion as of August 2012, according to the Federal Reserve Bank of New York.
And it's not just recent graduates fighting this battle. A recent report by Barclays found that 15.5% of student loan debt is owed by individuals age 50 and older, with 4.2% of that being owed by those age 60 or older.
"I think that people stereotype that younger investors are struggling with debt," notes Alexa Plenge, senior vice president of Fidelity's workplace guidance programs. "But older investors are as well. With the economic volatility, we are all facing our own obstacles."
Incorporating financial education that specifically targets student loan debt management might be new territory for employers. But companies could achieve robust returns in productivity and retention by focusing communication efforts on higher education financial obligations - an issue that clearly affects workers of all generations.
"Financial stress is a problem across the board," says Lenny Sanicola, senior benefits practice leader for WorldatWork.
Legally speaking volumes
Many companies already offer several programs as part of their benefit offerings that workers can use to help them handle student loan debt. Making sure that employees are aware of such offerings is a first step toward management of total finances.
"Tap into your own service providers, prepaid legal folks and other voluntary benefits," Sanicola notes. "All employees look to their employers for guidance."
Legal plan offerings can be an invaluable source of information for the financially strapped employee.
"We know getting out of debt takes planning and financial counseling tools to help employees prioritize debt," observes Ann Dieleman, senior vice president at ARAG. "It's really about empowerment, doing the things you need to do to protect yourself, having your financial house in order and knowing where you stand."
If a worker is unsure of what they can do from a legal perspective with regard to potential hardship related to their student loan, they can call their legal plan, if they are enrolled in one via their employer.
One major component of legal benefits is financial planning, and the savings can be twofold. ARAG reports that the average lawyer charges over $300 an hour for their services, which could put an individual into deeper financial stress if they must consult on their own. But working through a benefit-sponsored plan can reap savings in overall debt management as well as save on attorney's fees.
"We help employees understand their rights, repayment options and what happens if they default," Dieleman says. "I think there are elements we see consistently with financial planning and debt across demographics. But there is a strong sense that as people make better decisions, there will be less distractions and better focus at the workplace."
Employees of all ages are doing what they can to not have the next generation inherit this cycle of debt. Some are putting more toward the financial futures of their own children and grandchildren in 529 plans, savings vehicles that are gaining major ground.
"The so-called financial experts who run analysis would most uniformly say to save for your retirement before your child's education," says John Heywood, a principal in Vanguard's retail investor group. "That's what the financial pros say. But that is not the case, and most [employees] are saying they want their child or grandchild to do as well or better than them; it's pretty powerful. And this applies to people whether or not they have financial education."
Fidelity's annual College Savings Indicator, released in August 2012, found that familiarity with 529 plans increased from 51% in 2011 to 54% this year (and up from 40% three years ago). And about one-third of families enrolled in 529 accounts have increased their contributions since first starting these tax-advantaged plans, up from about a quarter of participants in 2011.
Separately, the Financial Research Corporation reports that total assets in 529 plans grew about 10% from fourth quarter 2011 to first quarter 2012.
"There is recognition among parents and grandparents that saving for college is extremely important," Heywood notes.
Most employers may not have a direct payroll deduction correlation in partnership with 529 plan providers due to maintenance fees and other management, though some may indeed offer enrollment as a voluntary benefit. But they can still market the plans to employees as part of their overall financial education efforts.
Ultimately, offering assistance when it comes to student loan debt is akin to any other benefit employers can offer. But it's critical for employers to help their workforce recognize why they are struggling in the first place.
One thing to keep in mind is that financial wellness and debt management are issues for employees of all income levels. Myths may abound that such an issue only affects earners on the low end of the pay scale. Sanicola says this is not true, and should employers ignore employees on the high end of the pay scale, they may be missing out on helping a significant number of workers.
"Everyone is struggling with savings, and financial issues might be different among generations," he says. "Employers need to take an integrated approach to financial wellness and be more holistic. ... the key is to get at people's behaviors and develop programs that address the financial issues and vulnerabilities of your workforce."
Identification and enacting a plan toward total debt management and financial health can go a long way toward developing a more productive employee.
"Education is a real imperative," says Dieleman. "Financial issues are affecting their presenteeism and absenteeism; we know it's having an impact."
For younger employees, the challenges can be particularly acute given their current debt load, difficult hiring market and narrower negotiating room at the compensation table.
"The first thing to understand is what your paycheck is and where it's going," Plenge notes. "I think it's good for any person to get this right from the beginning and make wise decisions with their disposable income. We need young investors to begin saving, but it's not intuitive."
Overall, focusing on the shrinking wallets of student-loan-debt-laden Americans may become more prevalent at organizations looking to get a more productive, engaged and present workforce. "Financial wellness is an approach of finding out the issues of your workers by asking behavior questions and putting in a program that helps them do something about it," Sanicola says.
Kevin Sweeney, a former EBN Associate Editor, is a freelance writer based in Maryland.
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