The student debt crisis is not a personal finance problem.
Or more accurately, we should say that it’s not just a personal finance problem.
Although it’s often seen as such, the student debt crisis actually has larger effects that extend beyond just borrowers’ personal budgets; impacts that trickle into the workplace, the economy, and the cultural fabric of this country as a whole.
The effects of student debt and the economy is a hot take that will have to wait for another post though. In this post, we take a look at just the effect of student debt in the workplace, the ways in which student debt subtly (and not-so-subtly) affects productivity, hiring, and retention, and what employers can do about it.
Student debt is one of the leading contributors to financial stress, which in turn, causes increased levels of presenteeism, lost productivity, and absenteeism in the workplace.
(Although it sounds like it might be a good thing, “presenteeism” refers to when employees show up to work while sick, injured, or otherwise impaired. It can lead to burnout, lost productivity, low quality work, and, ultimately, churn).
Financial stress has detrimental effects on both employees’ health (mental, physical, and emotional) and company morale and culture. It is a major cause of employee churn as financially stressed employees are 34% more likely to be absent or late to work, 5x more likely to admit to being distracted at work, and 2x more likely to look for a new job.
All these effects compound and can cost companies 11-14% of their annual payroll costs each year!
Not only is student debt one of the leading causes of financial stress among borrowers in the workforce, it’s also a significant source of mental health issues–and both put significant and costly dampers on productivity in the workplace. Financial stress alone costs US employers ~$183B annually, while the mental health crisis is estimated to cost the US economy ~$210.5B a year (and is projected to cost the global economy $6.1T by 2030).
Student debt negatively impacts productivity in the workplace through its effects on employees’ mental and financial well-being. In a recent study by ELVTR, 54% of student debt holders reported experiencing adverse mental health issues as a direct result of their student debt burdens–56% of the borrowers surveyed reported anxiety, 32% had depression, 20% experienced insomnia, and 17% suffered from panic attacks. Additionally, borrowers with high amounts of student debt have also been known to suffer from higher levels of financial stress, lower financial well-being.
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Poor financial and mental wellness can significantly detract from workplace productivity.
Employees experiencing financial anxiety are much more likely to admit being distracted at work, while also reporting decreased job satisfaction, engagement, attendance, and workplace loyalty. According to an ADP report, 29% of financially stressed employees say they spend about an hour each day on personal finance-related matters, ~50% of financially stressed employees say they lose a few hours every month to such matters, and ⅔ of all employees say they lose a few hours of productivity each week to personal finance issues.
Employees suffering from mental health issues experience similar decreases in productivity, engagement, and retention. According to the American Psychiatric Association, unresolved depression, alone, is responsible for a 35% productivity loss.
In addition to having negative effects on workplace productivity, engagement, and morale, student debt can strongly influence employee churn.
A 2023 survey by the ADP Research Institute’s Data Lab found that employees who felt their student loan debt was a “heavy burden” were 2.4 times more likely to be in the midst of churning. Additionally, employees with over $150,000 of student debt were 3.4 times more likely to feel their debt was a “heavy burden” than those with smaller debt burden.
What’s more, ADPRI found that in any given month, roughly 1 in 2 employees without student debt are actively trying to leave their company, but almost 2 in 3 employees with over $150K of student debt (and 3 out of 5 employees with any student debt) are trying to leave.
If student debt can make borrowers more likely to seek new job opportunities, it can also make it more difficult for companies to hire good talent, especially if the total compensation packages offered aren’t adequately addressing employees’ needs. In a competitive hiring market, the financial stress and constraints imposed by student debt burdens could ultimately push employees to choose one company over another.
On the other hand, companies that offer employees student debt support may see a lift in hiring. In fact, 70% of Gen-Z students said their student debt would influence which jobs they’d choose after graduating; 86% say they would commit to one employer over another for 5 years if the employer helped them pay back their student debt.
Beyond directly influencing an individual’s job decision, student debt can also impact companies’ long-term hiring ability by affecting the size of the talent pool. Already, student debt is increasingly influencing students’ willingness to pursue certain fields of education or career paths. Graduates with student debt are more likely to choose high-paying jobs out of college than to pursue jobs that don’t (or can’t) pay as much. Additionally, student debt can discourage people from pursuing graduate or professional degrees, some of which may be necessary to work in specialized fields and industries.
If the student debt crisis is left to grow unchecked, companies may find themselves struggling to fill their talent pipelines, especially as the cost of education continues to rise.
Even though it's individual employees who carry student debt, it’s clear that the $1.7T student debt crisis is a collective problem that will take efforts from multiple parties to solve. Companies can offset the negative impact of student debt on the workforce in a variety of ways–from supporting employees with access to educational debt tools and resources to offering a student loan repayment benefit.
No matter how you want to support your employees, Highway Benefits can help! Schedule a call with our team today to learn more.
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Disclaimer: This article is purely information and is not intended as financial or legal advice. For more in-depth questions on how to interpret US laws or tax codes, we recommend you speak to a specialized attorney.
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