PLANSPONSOR: What exactly are
we talking about when we discuss
student loan debt?
Nigam: Student loans have become a
major problem for our economy. Right
now, about 44 million Americans1 carry
student loan debt and collectively owe
more than about $1.4 trillion2. That makes
it the second largest consumer debt category, behind only home mortgages. And
the number of people attending college
keeps increasing. By 2020, it’s estimated
that over 60% of jobs will require more
than a high school education. So the
number of people taking on student debt
is expected to double by 20253.
For example, 70% of the 2016 college
graduates will enter the workforce with an
average student loan balance of $37,0004.
These borrowers are looking for employ-
ers or benefits that can help pay student
loans down faster, and employers are
starting to take notice. Many recruitment
efforts acknowledge the issue of student
loans—and the ability to build candidate
interest in open positions—and research
shows that 86% of young workers5 would
commit to an employer for five years if it
helped pay down their student loans.
PS: Generally, when we think of student
loan debt, we assume it’s Millennials,
those recently out of college, but I
understand that’s not the case.
Thompson: That’s right. You hear about
it being a Millennial issue, but Fidelity
did a survey last year of more than 9,000
401(k) and 403(b) participants of plans
recordkept at Fidelity, and we found
that over a third, overall, have student
loans. Many people take them for a
loved one, such as parents to help their
kids. Sixty-three percent of Millennials
have student debt, but 36% of Generation Xers have it, and one in four Baby
Boomers do. So it’s more widespread
than people realize.
PS: So if it’s a widespread problem,
what long-term issues may grow out of
it if we don’t address it at a societal—
or maybe a workplace—level? Besides
the fact that it’s growing, what other
challenges or issues do we face?
Thompson: A few challenges we see
involve how people save and spend. For
example, younger Millennials are putting
off getting married; they may be delaying having kids or even buying a first
home. The issue for Gen Xers is they are
still paying down their own loans while
balancing the need to save for their kids
college education and for their own retirement. And with Boomers, they find themselves taking out their own student loans
or tapping into their 401(k) to put their
kids through school and delaying retirement. All three groups are taxed both
emotionally and financially. We found
that, in general, when people take on
debt it raises their stress level; they don’t
sleep as well or eat as well. We studied
how certain life events affect people, and
taking on debt was one of the most negative events. It affects almost every part of
people’s lives: their money, their health,
work and their overall happiness.
PS: So, if we step beyond to our
PLANSPONSOR audience, obviously
this is affecting their employees. But
why should retirement plan sponsors and employers care about their
employees’ student loan debt? What
are the implications for the employer
and the workplace?
Moorjani: When we think about financial wellness, clearly student debt
contributes to it. We found that when
people can’t manage month-to-month
expenses—which may include student
loan payments—they’re not saving. They
prioritize paying down that debt over
saving for retirement and healthcare. In
fact, 79% of Fidelity participants we interviewed said student debt keeps them
from saving for retirement.
The Costs of Student
Loan Debt at Work
Student loans play a greater role in workplace financial wellness
and employee health than plan sponsors might anticipate.
It should not be surprising to most plan sponsors that many Americans,
including their own company’s employees, are dealing with student loan
debt. However, what may be surprising is who those people are, and the toll
that it takes on their ability to be productive at work. To talk about student
loan debt and what plan sponsors should be considering around the
issue, PLANSPONSOR spoke with Fidelity executives Jeanne Thompson,
senior vice president of Workplace Thought Leadership; Akhil Nigam, a
managing director with Fidelity Labs; and Sangeeta Moorjani, head of the
firm’s workplace product, marketing and advice business.
Thompson Nigam Moorjani