Every year, millions of people around the country attend colleges of all types in pursuit of a degree. Attaining a college degree is the key to earning higher salaries in the labor market, and provides the holder with access to more lucrative jobs. Indeed, going to college is seen as a safe investment, and in many cases pays off — the average college graduate can expect to earn $1 million more than the average high school graduate. However, there are many barriers which make it very difficult for people to pursue a degree, most prominently the amount of debt people have to take on to cover their education. There are currently $1.6 trillion of student loans outstanding in the U.S., and student debt is the second-highest source of household debt, behind mortgage debt. The average student loan for a graduate of the Class of 2018 was $29,800, according to a study by Student Loan Hero.
The Rising Student Debt Crisis
This crisis has become a national issue. While college is not the only path to a great job, more than half of all jobs paying over $35,000 require a bachelor’s degree or higher, and more employers are starting to demand a college degree from applicants. Despite this, college enrollments have been declining for the last eight years, in part due to the burden of student debt. The cost of tuition has increased at almost eight times the rate of inflation, and many prospective students — especially those from minority groups or who would be first-generation students — are struggling to pay these higher costs. Half of all undergraduate students are working in addition to attending school full-time; 86 percent of part-time undergraduate students are also working. As the cost of tuition continues to increase, parents, students, and policymakers have been looking for solutions.
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Democratic presidential hopefuls have made resolving the student loan crisis a key part of their platform. Senator Elizabeth Warren, for example, has proposed a plan that would cancel up to $50,000 in student loans for families making under $100,000, and provide partial forgiveness for those making between $100,000 and $250,000. Warren’s plan would also create a $50 billion fund to support Historically Black Colleges and Universities, and would make tuition free at public colleges. Senator Bernie Sanders has proposed a similar solution — his plan would make tuition free at public colleges, and would provide student loan forgiveness to everyone with an outstanding student loan. Free college and debt forgiveness are not the only proposals. A bipartisan group of senators recently proposed the ISA Student Protection Act, which would create a legal framework for Income Share Agreements, a method of education financing where students pay nothing upfront, in exchange for a set percentage of their future income.
One proposal which has started to gain more traction is to have employers help pay down their workers’ student debt. Senators Thune and Warner, a Republican from South Dakota and a Democrat from Virginia, respectively, have advocated for a system where employers will take a bigger role in paying off student loan debt. Their bill, the Employer Participation in Repayment Act, would provide a tax incentive to employers who help their workers pay off their student loan debt. At the moment, employers can contribute up to $5,250 each year tax free to help cover the education expenses of students who are working while going on a course or attending college.
The Benefits of Employer-Sponsored Student Loan Repayment
The bill proposed by Thune and Warner would expand the benefit to allow employers to provide the same tax-free contributions to employees who are suffering from student debt. This would mark a significant change from the current system where borrowers pay taxes on any contributions their employer makes toward their student loans, which can make employer assistance counterproductive in many cases. The proposed bill would encourage employers to contribute more money toward their worker’s student loan debt, which would make it easier for workers to pay off their student loan debt on-time. The bill would also have a number of benefits for employers.
Firstly, this employer-sponsored student loan repayment system would give employers a new tool to attract better workers. Indeed, if an employer is offering to make student loan contributions, more college graduates are likely to want to work at that company. The heavy burden student loan debt has on the lives of debt holders has resulted in any relief being welcomed, and so employers would likely be able to access a flock of new workers who have a degree and are ready to work. Employers offering student debt relief could improve their hiring funnels further as those burdened by student debt who would otherwise not have been able to take a job — especially if it was in another city — would be more likely to apply. Thus, the employer would have more options around who to hire, which will maximize their chances of finding the best possible candidate for an open position.
Offering student debt relief to workers may also help businesses retain their best talent. If an employer is making monthly or annual contributions toward a worker’s student loan debt, that worker is more likely to stay at the business. The worker will not want to move to another job that doesn’t provide student loan forgiveness, and will also feel more attached to their employer who is helping alleviate a massive burden on their life. Indeed, higher employee retention would perhaps make employers more comfortable with offering more educational opportunities in the workplace. Millennial turnover is higher than any other generation before, which makes it difficult for employers to justify extensive training — the employee could leave with their new skills and find a better job. However, if employers can keep an employee for longer, they can provide them with more training, which will make them both more productive, and more likely to stay with the business.
Employer-Sponsored Student Loan Repayment is Already Popular
Some employers are already offering incentives to help their workers attend college or pay off their student loan debt. Walmart, for example, launched a plan in 2018 that would pay for college for its more than 1.5 million employees. Walmart offers all part-time and full-time employees at their stores the ability to attend college for $1 per day for the length of their college program. Walmart will also help pay for students fees and books, which have become increasingly expensive in recent years. Employees with outstanding student loans may also be more worried about paying for basic costs, which will render them less productive. This program was designed to solve that problem and help their employees earn a college degree without incurring debt, which is a significant source of strain for workers.
Fidelity Investments, a financial services company, has also created a plan which helps employees pay off their student loan debt. More than a quarter of Fidelity’s workers have signed up for the program which pays up to $10,000 over a period of five years. Penguin Random House also started offering loan repayment two years ago. Around 10 percent of the company’s 5,000 employees participate in the program, according to their CEO. The program is popular with people from all generations and includes older employees who have returned to school or who have taken out loans for their kids. This highlights that perhaps employer-sponsored student loan repayments may boost the chances that people go back to school as they will not have to worry about the burden of debt, which will increase their productivity over the long-term.
Better Than Free College?
This proposal is more manageable and practical than solutions such as free college. Free college programs do not cover the price of books and board, unlike the type of employer-sponsored student loan repayment programs which the Employer Participation in Repayment Act would support. The College Board recommends that students allocate $1,200 per year for books and other resources, and the total price of textbooks is only rising. If the government were to offer free college, students would still be liable for costs like books, additional fees, and board. In addition, free college may encourage more people to attend college who do not have the academic abilities to do so. Indeed, if college is free, more people may attend for that reason, without first considering whether or not getting a college degree is the best answer. Employer-sponsored student debt repayment plans, on the other hand, do not suffer from these problems, and would have a direct and meaningful impact on the influence of student debt on American borrowers.
The Future of Employer-Sponsored Student Debt Repayment
This bill has already received bipartisan support, and is expected to pass Congress within the next year. More than one-third of both the House and the Senate have signed the bill as cosponsors, and many employers have expressed their support for the program. Several companies, according to an op-ed by Senators Thune and Warner in Time Magazine, have already committed to creating student loan repayment programs if the bill were to pass. This bill presents a good way in which the government can reduce the burden of the country’s outstanding $1.6 trillion while also helping boost economic prosperity in the private sector.
This bill is not a silver bullet solution to the student debt crisis. More changes need to be made in order to create a fairer and more equitable student loan system, such as increasing the size of Pell Grants, and simplifying financial aid documents so that students can easily understand how much they are expected to pay and when. However, this bill would provide a large amount of support for many people who are saddled with student debt, and would do so in a timely manner. As employers start to offer such programs, more employers would start their own programs in order to compete with the benefit. Student loan debt is an incredibly complex problem to solve, but this is a good first step in reducing the burden of student debt on Americans. Unlike free college, this plan is cost-effective, would promote economic prosperity, and, perhaps most important, is likely to pass in the near future.
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