Anyone who has moved to start a new job or had a brief period of joblessness understands the challenges faced by new employees: High relocation costs, prolonged first paychecks, declining savings, and high stress. However, recent college graduates face an additional burden: student loans.
Student Loan Debt by the Numbers
That student loans have frequently been a topic of conversation is no surprise— the numbers are staggering. According to the Institute for College Access & Success’ most recent report, the average college graduate with a Bachelor’s degree graduated with debt burden of $28, 650. Over a standard 10-year repayment plan, that accounts for average monthly payments of $305 - $449 based on varying mixes of government & private loans, representing more than 10% of the take-home pay for an employee making $40,000 annually.
This is unlikely to change, and the results are staggering.
· According to NACE, the average graduate starting salary has dropped 2% from 2017 to 2018
· Currently, student loan debt has grown to $1.57 Trillion according to the Federal Reserve
· In 2018, Brookings found that 15.1% - 27.5% of student borrowers studied defaulted at least once over a 12 year time span.
The Impact of Loan Debt on Cash Flow
In Fall 2018, a story by CNBC circulated the internet about the challenges faced by Austin Wilson put a face to the crisis. Wilson had recently moved and was caught in a bind: he needed $600 to pay rent, but had recently exhausted his emergency fund after his car broke down. He had only $100 in the bank account and would not receive the needed funds until after rent was due— Wilson considered turning to a payday lender.
It wasn’t that he hadn’t tried other ways to secure the funds—his relatives were strapped for cash, he was unable to get a credit card, and banks did not issue loans less than $3,000—more than he wanted given his approximately $30,000 in student loans. Wilson even sought a 2nd job, but was unable to find one due his ongoing education and current employment.
In Wilson’s own words: "I know this money is coming and I know when it's coming, but it's just a little bit too late.”
In Kansas, a payday loan would have charge 391% APR, for just a two-week loan, costing Wilson $75, which is still less than the $185 late fees he’d have incurred for missing his first rent check.
Wilson is far from alone in facing this dilemma. The average American has the following monthly bills to consider:
· In 2018, a 2-bedroom apartment costed an average of $1,442
· The monthly payment on a New Car in 2018 was $523
· The average family spends $172 on utilities
For a resident in Cleveland, OH living on $40,000 a year, these bills are challenging on a monthly take-home pay of $2,611. Factoring in loan repayments of $305 - $449 leaves no room for emergencies.
When Emergencies Happen, Costs Rise
If bill don’t align with an employee’s pay cycle or an unplanned for emergency (or several) occurs, employees are left with few options and have to make tough decisions.
· Late fees accrue rapidly
· Missed payments may result in hits to an employee’s credit score lasting 7 years
· High interest charges from credit cards or payday loans
· Overdraft fees, which are equal to as much as $3250% APR at some banks
Considering that 53% of American cannot cover a $400 emergency, these can quickly spiral out of control.
How Employers Can Help
Employers should care because our employees matter to us on a personal level. However, even from a purely business sense it is in our interest to help employees with student loan obligations find financial stability. Employees stressed about finances have higher rates of absenteeism, increased healthcare costs, and lower productivity.
For recent graduates, student loan payments are a high stressor. Helping relieve this is an opportunity to create a bond beyond a paycheck. In 2018, SHRM found that 4% of employers offered student loan payment support. However, this is an expensive proposition which may not be possible for companies and educational institutions.
For those who can’t afford to help with payments, there are other options. One of the most achievable is empowering employees through financial education. There are many ways to do so, but Financial Wellness Platforms like FloatMe are an easy, low cost solution. Employees are able to learn how to manage their personal finances, alternative student loan repayment plans (for federal loans), and thereby position themselves to avoid financial disasters. These platforms are also able to offer these employees a parachute when they find themselves in rough waters: a free or flat fee advance on their accrued earnings without the high interest rates of predatory lenders. This way, they can weather any financial emergency.
Interested in learning more or receiving free content to share with your employees? Sign up here: https://www.floatme.io/partners
FloatMe partners with employers to empower employees to take control of their finances through financial education-- and provides the tools to help them weather financial storms.
