Before policymakers consider how to solve the student debt problem, they should understand that today’s typical indebted college student is not like the student of the past. Not only are they deeper in debt but likely older as well, with children, and working full or part time as they study for a degree.
Still they need to borrow to pay tuition and other college costs, which has contributed to a student debt explosion.
According to the National Center for Education Statistics, almost 40% of students enrolled for the 2019-2020 academic year are 25 or older, and 57% are women.
There is currently over $1.5 trillion in student debt outstanding held by 44 million borrowers, averaging more than $30,000 per student.
The impact of the growing amount of student debt — now the second largest category of consumer debt after mortgages — “has created an entire generation of a permanent debtor class which impacts the rest of their lives and the broader U.S. economy, including companies — companies and culture,” says Dan Rosensweig, president and CEO of Chegg, a publicly traded company that provides an online educational platform.
Student loan borrowers are forced into jobs they don’t want; missing payments on other debt, including auto loans and credit card debt; delaying marriage, children and homebuying and, in many cases, suffering from depression and anxiety, says Rosensweig, who spoke at a recent webinar sponsored by the Aspen Institute: Unpacking $1.5 Trillion: The Real Impact of Student Loan Debt and How We Turn the Page.
“If the burden were reduced, think about the money that could go into the pockets for housing and retirement. It would be the biggest economic boon this country has ever seen.”
Help From Employers
With that in mind, Chegg has joined a growing number of companies that are helping employees pay off their student debt. Its Equity for Education program provides entry-level through manager-level employees with at least two years tenure at the company a $5,000 annual grant of company stock to help the employee pay off their student debt (employees at the director or vice president level are eligible for up to $3,000 annually).
Rosensweig is lobbying for legislative change so that the grants are not taxable for the employee and tax deductible for companies.
Legislation has been introduced in the House, along with a companion bill in the Senate that would make that change. The Employer Participation in Repayment Act of 2019 would allow employers give tax-free student loan assistance up to $5,250 a year per employee, the same amount the tax code now treats as tax-exempt for employer-provided tuition assistance.
Abbott was able to obtain a private letter ruling from the IRS so that it could offer a program allowing the company to contribute 5% of an employee’s salary to their 401(k) plan if the employee contributed at least 2% gross salary to their student loan payments. The employee is not required to contribute to their 401(k) to qualify for the Abbott contribution.
The program Freedom 2 Save program has signed up more than 1,000 employees so far, helping Abbott attract and retain talent, says Marlon Sullivan, a divisional vice president of human resources at the company, who also participated in the Aspen Institute webinar.
Reducing the Need for Student Loans
Another approach to addressing the explosion of student loan debt is to help limit the need for so much borrowing in the first place. To that end, companies like Walmart and Disney are offering debt-free college education to full and part-time employees who study online at nonprofit online universities through Guild Education.
“This could be the next major employer benefit,” says Gary Brahm, chancellor and CEO of Brandman University, which works with Guild on such programs, and also participated in the Aspen Institute webinar. It could lead to a new trend among graduating high schoolers: choosing to take a job at one of the employers who offers this benefit so they can get a college education debt-free. “This is still in the process of developing but could be a very big deal,” according to Brahm.
Employers could also choose to eliminate the bachelor’s of arts requirement for jobs that realistically can be done without one, requiring instead completion of a competency-based certificate program, which wouldn’t cost as much time or money as a B.A., or another way a to demonstrate competency.
A number of employers in the technology area have already eliminated the bachelor’s of arts requirement, according to Ajita Talwalker Menon, former special assistant for higher education policy in the Obama administration, who participated in the Aspen Institute webinar. That allows employees to borrow less and provides employers with a more diversified talent pool. The employers found that “a B.A. wasn’t a good indication that a person could perform the job,” says Menon.
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