Financial stress is going to increase for 45 million Americans on October 1st. Apologies for the attention grabber (that borderlines clickbait), but it’s simply the truth. If you are not part of the nearly 1 in 5 Americans with student loan debt, you might not be aware that student loan payments are about to resume. Alternatively, you could be a student loan holder hoping that the president will extend the administrative forbearance just one last time. The fact of the matter is that student loan payments are going to resume, and very soon.
In June, as part of the debt ceiling negotiations, student loan payments entered the conversation. To reach an agreement, student loan payments can no longer be deferred. Now, focus is on October, the first month of mandatory federal student loan payments in over three years. So why am I in a panic about the status of the average student loan holder? It’s because I work on a team that talks to people (daily) about their financial tension, triumph, and trepidation.
According to the Federal Reserve Bank of New York, the lack of student loan payments equated to ~$393 in additional cash flow for the average borrower. While this amount impacts borrowers differently depending on their income and other outstanding debt(s), for many, this reintegration will be supremely difficult. There are a few different ways this payment could impact you, your coworkers, or your employees. Each of them can be explained by understanding some concepts in behavioral finance.
Let’s assume you have two different employees.
Employee 1: Damian is a diligent worker and an excellent saver. During the administrative forbearance, Damian decided to take the dollars he normally would allocate toward his student loan payment and place them in a Roth IRA.
Employee 2: Paige just began working with you and is straight out of college. Since she entered the workforce, she hasn’t been required to make a student loan payment. Paige doesn’t have an emergency fund and lives paycheck to paycheck.
While at first glance it might seem like Paige is the only employee that will incur financial stress due to the conclusion of the administrative forbearance, it’s important to understand Damian could be impacted as well. Though he can objectively afford the payment, he will still need to adjust the goals he worked toward during the administrative forbearance. Understanding status quo bias can help us see that it’s hard to deviate from our current decision-making sequence (even if, as an outsider, this feels like a net neutral event). As an employer, it’s vital to understand the impacts of these financial stressors on employees.
Financially stressed employees can quickly impact employers financially. In fact, financial stress costs companies $4.7 billion per week. In addition, 76% of employees who are financially stressed feel their productivity has been negatively impacted. Employees experiencing these increased stressors report being distracted for 3 hours or more at work dealing with their personal finances. Over the long term this increases health care costs for employers as well. The financially stressed employee can cost an additional $400+/year in healthcare costs. As if none of these data points were stressful enough, these stressors lead to increased turnover, and a decline in mental health. So what can we do?
We can all be part of the solution. It’s vital to create a culture that cares about the overall wellness of employees. Financial health is a pillar of overall wellness and a comprehensive wellness solution should address (explicitly) the financial concerns of employees.