Employers and student debt

Student loan payments are back. Here’s why employers need to pay attention.

Student loan payments are back, and the millions of Americans with college debt aren’t the only people who are affected. Their employers, too, could feel the consequences.

Data from the ADP Research Institute suggests that the resumption of student loan payments might affect employee retention as workers look for ways to make ends meet after a 43-month grace period.

First, some background. For most borrowers, student loan payments and interest have been on hold since March 2020. The pause afforded some 28 million borrowers more than $260 billion in waived payments, according to Federal Reserve Bank of New York researchers.

But those borrowers told the Fed something interesting: As payments resume, they expect to reduce their other spending by only $56 per month. That’s a relatively inconsequential $1.6 billion decline in monthly U.S. personal spending. Student loan payments totaled about $6 billion a month prior to the pandemic, according to the Fed. Something doesn’t add up.

While the Fed was asking its questions, we were asking some of our own. In September, the ADP Research Institute quizzed indebted workers about how their behavior and spending might change. And we found something interesting, too.

A big surprise

We hypothesized that workers with greater debt would be reluctant to leave their current employers, reasoning that they’d be eager to hang on to their tried-and-true steady paychecks. We were wrong.

Yes, a worker’s outstanding debt does influence whether they’ll stick with their current job or find a new one. But we found that workers with more debt are more likely to be looking to leave their jobs, not less likely.

And how workers feel about their debt is more influential than the actual amount they owe. Employees who perceive their debt burden to be great, whether it is or not, are far more likely to be shopping for a new job.

In fact, workers who consider their student loan debt to be a “heavy burden” are 2.4 times more likely to be in the process of leaving their organization. 

This sentiment could be a sign of things to come if workers act on their signaled intent to find new, higher-paying employment.

For more on our worker survey and its questions, see ADPRI’s Data Lab.

The burden of debt

Whether a person labels their student debt a “heavy burden” can depend on the amount owed. As the amount of debt increases, so does the perceived burden.

Workers with more than $150,000 in student debt are 3.4 times more likely to feel burdened than those with smaller outstanding loans.

Data from the New York Fed suggest that rising student debt is pervasive, with every age group seeing an increase in loan balances over the past three years.

Employers take heed

The perceived burden of student debt has the potential to weigh on workforce retention.

In any given month, about half of workers are engaged in the process of leaving. Among workers with student loan debt, that number increases to more than 3 out of every 5.

Any level of student debt increases a worker’s intent to leave, but people with the biggest outstanding student loans are twice as likely to be looking elsewhere compared to those who have no student debt.

And as we noted earlier, people who perceive their debt to be a burden are 2.4 times more likely to be in the process of leaving.

Our takeaway

Growing student loan debt has long been a drag on the U.S. economy. Some 43.6 million borrowers collectively owe an estimated $1.77 trillion and account for 1 in 4 of the country’s more than 129 million privately employed workers.

That debt also seems to influence how workers feel about their jobs. But why?

We can look to the Fed for a clue. If borrowers plan to keep spending more or less the way they have been after repayments kick in, the money will have to come from somewhere.

Our data could be picking up on worker hope that they can land higher-paying jobs. If that’s the case, student loan payments could trigger a labor-market shift as workers look for better opportunities.

Age and other demographic factors could affect how people feel about their student debt, influences we intend to continue studying.

Insights in Action: What employers can do One way for companies to get ahead of worker turnover is to offer financial education to employees. Resources that help with budgeting, debt management, and the basics of credit and interest can help alleviate stress related to student loans and potentially boost employee retention and engagement. Free resources include the Federal Deposit Insurance Corp.’s MoneySmart program and the financial literacy curriculum from FIS Global. Starting in January 2024, the federal Secure Act 2.0 will allow employers to make matching contributions to 401(k)s and other plans based on an employee’s student loan payments, even if the employee isn’t making contributions to the plan themselves. Such contributions offer another tool for improving employee retention.