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Student Loan Debt: Everything HR Needs to Know

13 August
by Josh Hrala
15 minute read

$1,500,000,000,000. This is how much student debt exists in the US as of February 2019, a figure that towers over credit card debt ($870 billion) and impacts over 44 million Americans.

70 percent of college graduates carry student loan debt into their first roles in the workforce. At the same time, 14 percent of parents also take loans to help their children through school.

On average, these borrowers carry around $30,000 of debt - give or take a bit if they end up going for a higher level degree or if they had help via federal programs or other scholarships.

So what does all of this have to do with HR? A lot, actually.

In today's tight labor market, organizations need to pay close attention to what their employees want and - most importantly - need. Employers need to understand how student loan debt impacts their talent management and how they can use cutting-edge solutions to help staff members get out of these holes that most of them fell into before they could even legally enter a bar.

Today, we'll look over what employees want from employers when it comes to student loans and help HR gain a better understanding of the problem as a whole.

First, as with any giant topic, let's start at the beginning.

A Brief History of Student Loan Debt in the US

Student loan debt is a hot button issue for many reasons, though its safe to say that it's because it impacts a tremendous amount of people. So where did the problem start?

For that, you have to go all the way back to World War II. Before this time, college wasn't a necessity. There were tons of jobs out there that didn't require extended schooling to earn a comfortable living. In fact, in the 1940's, only about six percent of people in the US obtained a Bachelor's degree or higher. By 2009, that figure jumped to 32 percent and continues to rise.

This can all be traced back to changes made to higher education in the 40's and beyond.

"Since 1944, many changes have been made to the higher education system, starting with the Servicemen’s Readjustment Act of 1944, better known as the GI Bill of Rights. This bill made college more affordable for veterans by paying up to $500 per year in tuition as well as a cost of living stipend. After the GI Bill's passage, 8 million veterans enrolled, even though the government expected only 800,000," reports Chad Chubb for Kiplinger.

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"In 1958, President Eisenhower signed the National Defense Education Act (NDEA), which provided tuition grants and loans to non-veterans. The bill was in response to the need for more technology education as the United States tried to keep pace with the Soviet Union's space and weapons advancements."

While this allowed more Americans to attend college, it also started to create a bigger want for higher education. As anyone with a cursory knowledge of economics can tell you, when there starts to be a greater demand, supply and price both go up.

This trend eventually led to more jobs that required extended education. Now, it's kind of hard to pin down how all of this played together - it sort of becomes a chicken or the egg situation, debating which came first.

However, it's safe to say that more people started going to college and - most likely because of that - more jobs required degrees, causing even more people to go to college. And, back then, there was a real cost benefit for achieving a degree. In other words, you generally earned a higher paying job that offset the investment you made in the form of tuition.

To help make this point, let's look at some figures. Back in 1950, it cost about $1,000 to attend Yale for a year. According to Chubb, that amount rose to over $60,000 by 2015.

Let's explore this interesting factoid a little more.

Outpacing Normal Inflation

Now, you might be thinking: of course it went up, everything inflates over time, right? Well, that's definitely true. However, if you take that $1,000 in 1950 and adjust it to reflect today's inflation, it comes to a whopping $10,628 - still far less than $60,000.

The average - for places with less prestige than Yale - hovers around $26,000 per year (plus room and board, which can nearly double the cost). This means that college tuition has not simply followed the course of normal inflation. In fact, it nearly doubled the current rate of inflation.

"This brings the total cost of attendance to an astronomical total of $104,480 over four years. The comparable cost for the same four-year degree in 1989 was $26,902 ($52,892 adjusted for inflation)," reports Camilo Maldonado for Forbes.

"This means that between the academic years ending in 1989 and 2016, the cost for a four year degree doubled, even after inflation."

Maldonado continues by saying that - even though this is a huge increase year after year - the real trouble comes in when you start to look at wage growth. He reports that, according to the Federal Reserve Bank of St. Louis, the average annual wage growth was only 0.3 percent from January 1989 to January 2016.

Put into perspective, that means that every graduate is technically worse off than the graduates that came before them.

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And, to make matters worse, college degrees are no longer an extra benefit that allows you to move up quicker in a career. Instead, they are basically a necessity to even get in the door - even if your degree is in a field that has nothing to do with your job. It's like having to pay-to-play - but with your life and career.

In summary, tuition costs have outpaced inflation and vastly outpaced wage growth, leading to college becoming a necessity that allows you to enter the workforce with a huge debt burden over your head when - in the past - it allowed you to better your life financially instead of hindering it.

Now Let's Get Into HR

So what can HR do to help all of this? Is there a way that HR can help solve some of these problems?

In short, HR cannot simply solve the problem of college debt because - as you can see from above - its riddled with a bunch of different problems, mainly the fact that college simply costs too much.

What HR has the power to do is help workers who are struggling to pay debt and also make hiring decisions that do not take into account college degrees (this sounds like a strange idea, but I promise we'll get into why this is important in a second).

We'll explore both of these and more in detail, starting with the latter.

College Degrees and Hiring: How Much Weight Should be Put on Them?

A few years back, employers were asking quite a lot when it came to hiring - so much so, that it became a sort of joke. A typical job listing for an entry level position would require a college degree (four year), five years of experience, management experience, and a slew of other things that no graduate could ever hope to attain.

I've obviously hyped that hypothetical job listing up a bit, but given the fact that there are so many memes and jokes with the same premise floating around the internet, it's a very apt description.

Even if some of that was hyped up, a college degree was - and is still - the cornerstone of most job listings. You needed a degree to even be considered for certain entry-level roles, making obtaining a degree all the more important for millions upon millions of people.

But what's the point?

There are a lot of ways workers can gain skill sets without paying nearly $100,000 for them, such as working internships, getting a job out of high school and simply progressing through jobs with real-world experience, getting a certification, and a lot more.

Plus, the old requirement - for many jobs, anyway - simply required a degree. Not a specific degree, mind you, just any degree because they "show that someone can learn and stick with something." While that last part is definitely true, it also means that the employee will likely have a mountain of debt over their head that has the potential to last decades.

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The good news is that this is changing. And it all has to do with the tight labor market.

As we've mentioned in other blogs, the low unemployment rate has led to a tight labor market where employers are struggling to fill positions. At the same time, employees are more empowered than ever to leave their current roles for greener pastures elsewhere.

Whether that decision to leave is for more money or to simply progress their careers faster doesn't really matter here. The fact is that employers are now having to change the way they hire and not be so picky about requirements.

This is backed up by a recent report by the Society for Human Resource Management (SHRM) who found that nine out of 10 employers are now open to hiring individuals with no college degree.

"Companies are open to hiring candidates with a recognized certification (66 percent), an online degree from massive open online courses (47 percent) or a digital badge (24 percent) in lieu of a bachelor's degree, according to a survey of 600 HR leaders conducted in March by The Learning House, which provides technology for managing online degree programs, and Future Workplace, an HR advisory and research firm," they report.

SHRM also goes on to say that this is because of 'degree inflation' - AKA the thought that it is mandatory to have a Bachelor's degree to gain entry to a job. This is especially painful for mid-level jobs that typically require a bit of training but don't require the rigors of a four-year degree by any stretch. Most of these jobs, despite this lower requirement, still require a four-year degree to apply, which just doesn't make sense.

"Postings for many jobs traditionally viewed as middle-skill jobs that require employees with more than a high school diploma but less than a college degree in the United States now stipulate a college degree as a minimum education requirement, while only a third of the adult population possesses this credential," Joseph B. Fuller, a professor of management practice at Harvard Business School, told SHRM.

Another viewpoint is that this degree inflation problem came about during the Great Recession where tons of college grads earned their degrees and were met with little to no opportunities.

The theory goes that since all of these grads were hungry for work, they took up middle-skill jobs - such as technician roles, supervisor roles, etc - which they were way over qualified for.

Despite this sounding logical and even though it did coincide with the Great Recession, this viewpoint was actually struck down by a very large study by Accenture, Grads of Life, and Harvard Business School (the very same study that Fuller mentioned above).

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"Instead, we found that employers were increasingly inflating the educational requirements for jobs usually held by high school grads. We also found that automated hiring tools excluded applicants with relevant experience simply because they lacked a college degree," reports Fuller, this time writing in an op-ed for Working Knowledge, a publication by Harvard Business School.

"In many cases, qualified candidates never even got the chance to apply for a position."

As you can see, this is a huge talent problem. By inflating educational requirements, HR departments seemingly thought that this would increase productivity and their bottom line.

It didn't.

Instead, it did the opposite. The workers in these roles - who knew they were over qualified - typically performed worse, were less engaged, and had a higher turn over rate. This is likely because they only took the job as they searched for other work.

In summary, hiring managers, according to experts, arbitrarily inflated job requirements to attract degree-wielding grads to hopefully increase their productivity and, therefore, bottom line. This coincided with the Great Recession, leading many to believe recent grads simply had no other work options. It's an interesting combination, but one that has hindered possibly thousands of careers.

So What Should HR Do Here?

Simple: get rid of college degree requirements for all of the jobs that you can, especially middle-skill ones.

By doing so, you allow people without a degree to gain entry into the workforce while also opening yourself up to a huge pool of talent that has gone under represented over the last few decades (people without degrees).

By forcing applicants to have a degree, you end up filtering out great candidates that may have experience from other channels. Also, this switch allows those with college degrees to move into higher paying roles that actually fit their qualifications. Most people who are over qualified for a job will end up leaving organizations. In today's world, this retention issue should be avoided when possible.

That's really the main reason to forego degree requirements for most jobs, but there's also a bigger impact.

Right now, Gen Z is attending college or is about to attend college. For the first time in a long time, they are - or should be - taking a hard look at what they will get out of it. The days of going to college to find yourself or study something of interest are seemingly over because the price tag is just too high to gamble with (this is a shame, but still a fact of life).

While many will still attend college because it's been the pathway forward for so many years that it's almost ingrained in society, that will likely start to shift if college prices remain high. After all, many of people will see how devastating the loans are on Millennials and Gen Xers and decide that there has to be a better path.

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By taking out the college degree requirement, HR helps open doors and different paths, allowing entry-level workers or middle-skill workers to gain job access without going into debt. It stands to reason that the more organizations that do this the bigger the impact will be.

If everyone starts to do this, we may one day get a place where college degrees actually mean something again and are not just there to tick a box on an application form.

What About Repayment?

As with any article about student loan debt, we need to talk about repayment. Sure, taking away the college requirement is a good idea - and one that is backed by more businesses nowadays - but what are you supposed to do with all of these people carrying the weight of student loans?

As we talked about before, wage growth has been minuscule compared to the inflation rate of college tuition. At the same time, it's just getting more and more expensive to live in general.

According to a recent report, home prices are increasing faster than wages in 80 percent of US markets. For renters, the problem isn't any better. In a recent study by Randstad, 50 percent of Gen Z workers say that they have to work multiple jobs just to afford cost of living expenses. 53 percent said that their rent is increasing faster than their salaries.

Why bring this up? Because it's likely a compound issue. Workers are stretched thin. They have student loan payments and a higher cost of living, forcing them to work multiple jobs just to make ends meet. These are typically college grads who have done everything the way it should be done according to the typical pathways.

So what does this do to HR practices?

Retention, Engagement, and More: The Negative Power of Debt

The fact of the matter is that debt is a huge burden on the workforce. Many experts have said that high levels of debt - such as the current amount held by many recent grads - can cause retention rates to drop (because people will chase higher paying roles), engagement to suffer (because they can't pay for standard things like rent, which places more stress on individuals), and can even impact talent acquisition (for some of the reasons above).

All of these issues are intimately tied with HR. We all want our workers to thrive both at work and at home. At the same time, we want to hire the best talent, have those people stick around longer, and boost their productivity. In short, engagement is key in today's world and engagement is a culmination of at-work and at-home issues.

And this has led many HR leaders to start to take on the issue as best they can.

"One of the reasons that employers are taking notice is that student loan debt has a real impact on recruitment, retention and overall employee productivity," recounts Sangeeta Moorjani, head of workplace products for Fidelity Investiments, to SHRM.

"In the war for talent, solutions to address student debt can give employers a competitive advantage."

In that same article, SHRM goes on to say that the student loan debt problem is one that will drastically impact the future workplace, too. For example, Millennials are expected to make up a whopping 75 percent of the workforce in 2025. With most Millennials carrying debt, these issues cannot be ignored.

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"Young workers feel highly stressed as a result of the burden of student debt, and that debt clearly impacts their health and productivity in the workplace," Kevin Fudge, from American Student Assistance (ASA), told SHRM.

"Employers should realize that in order to retain the brightest young talent and demonstrate their commitment to employee well-being, they need to provide concrete and straightforward solutions to help alleviate the burden of student loan debt."

So that's the case for helping those with student loan debt, but what's the practical way of doing so?

One of the best ways is to create a student loan repayment plan (also known as SLRP).

"This benefit, which is usually administered through third-party vendors, allows employers to make monthly contributions directly to an employee's student loan servicer while employees continue to make regular payments," SHRM writes.

"The monthly contribution, which is applied directly to the principal, can shave several years off each loan."

Basically, SLRPs work very much like retirement plans do with the company working with an outside vendor to help students pay down their debt. This allows the company to ensure that the extra payments go straight to the loan servicer and not into an employee's bank account.

And that companies that have started to use these services have found that they attract better talent and keep them around longer. After all, who wouldn't love to shave off a massive amount of debt while working for an organization that clearly cares about their well-being?

Here's a simple case study provided by SHRM to show just how popular these services are right now:

"PwC launched its Student Loan Paydown program in 2016. Forty-five percent of the firm's 46,000 junior employees (with six years' experience or less) signed up to receive up to $1,200 annually for six years. The firm has found that this program has become a contributing factor in the job acceptance rate among applicants."

There are many flavors of this type of assistance, too. For example, Aetna provides assistance to those who obtained a degree within the last three years. Staples offers aid to high performing sales associates. Some organizations are more strict and some are more flexible.

No matter how a company decides to do it, SLRPs are vastly popular with many organizations claiming that it is their number one benefit. That's saying a lot considering that healthcare is thrown in the mix (though, let's face it, we all want and need healthcare).

At the end of the day, organizations are free to do as they wish. However, having one of these benefits on the table can seriously set companies a part from the pack, attracting better talent and keeping those individuals engaged and productive for a very long time. Considering the costs of turnover, companies are likely saving even more money, too.

SHRM also says that there are other ways of offering assistance than repayment, too. For instance, financial counseling is a great way to help those who have debt because many workers simply do not know that they have repayment options available to them.

The Wrap Up

We've covered an absolute ton of information here about student loans. We hope that you have a better understanding of how this situation unfolded and some of the most common ways HR can deal with it in a way that will help workers, boost employer branding, and - most importantly - increase engagement, productivity, and retention.

When it's all said and done, the student loan issue is one that will likely continue well into the future. HR needs to understand the negative aspects that can come about when workers are stressing out and struggling to live their daily lives.

Solutions for these large problems are not easy to start up, but those who do will differentiate themselves from the pack and become a well-rounded employer of choice that will have a workforce full of engaged and happy employees, which is what we all are striving for regardless of how tight the labor market is at any given time.

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