How student loan interest rate hikes affect employers

by Jovan Hackley | May 30, 2017

It’s graduation season, and millions of fresh-faced cap and gown donners are about to step into a world of possibility, both good and bad. As they grasp diplomas, degrees, and future possibility, 70 percent of them are foraying into an environment a recent government move will make more expensive by the minute.

From Bloomberg to Bankrate, last week news quickly spread about student loan interest rate hikes. Just in case you missed it, for 2017-2018 interest rates will jump from 3.76 to 4.45% for undergraduate loans, 5.21 to 6% for graduate loans, and PLUS loans will increase to 7%, up from 6.31 percent.

These small climbs are tied to 2013 federal provisions that link student loan rates to U.S. economic health determined by the Federal Reserve instead of a rate preset by Congress, as was the case in previous times.

THE UNLONELY LOAN: THE DIFFERENCE A FEW FRACTIONS OF A POINT MAKE ON HIRING

For employers the news “sounds” bad, but the question arises, “Is there a business reason to care?”

We could tell you yes, but we’ll let you figure it out for yourself.

Recent overall interest rate hikes, which spurred the loan rate increase, are a sign. “For now, the Fed has concluded that the economy is growing at roughly the maximum sustainable pace,” according CNBC and New York Times contributor Binyamin Appelbaum.

This good sign for the economy and banks drives the increases, but there’s a secret worker problem that sandwiches employers in between a rock, called student debt, and a hard place for recruiting employees.

GROWING EXPENSES: STUDENT LOANS & THEIR COMPANY – TUITION, RENT, AND LIVING EXPENSES

With the average cost of college increasing by 3.5 percent annually according to College Board, it’s safe to say that the cost of education is now increasing exponentially.

The changing tuition fees and rates today, turn into monthly payments and salary demands for the majority of workers entering the workforce in the not too distant future.

Combining the tuition fee and interest rate increases mean that a next year’s working graduate with the average student loan debt of about would owe an estimated 5% more each month than a counterpart in the same situation last year upon graduation.

That higher student loan payment is combined with growing rent, up 2.7% according to Apartments.com; growing medical expense, up 6.5% according to a recent PWC study; and the emergence of small lifestyle subscriptions (e.g. music streaming, cellular phone service, Internet services) that weren’t a guarantee of previous generations.

THE SECRET SALARY PRESSURE: THE UNMENTIONED REALITY RECRUITING & NEGOTIATION

For HR directors recruiting graduates this year and forward, they’re recruiting negotiating against a secret problem and growing inequity. While expenses and education, the cost of doing business for workers, continue to climb, Economic Policy Institute data shows that America’s in the midst of a 35–ear state of wage stagnation – with salaries in most industries being outpaced by the cost of education and expense.

IS THE GREAT HOPE BENEFITS?

While the dire drama of economic downers and education costs have continued, there is a brightspot – smart employers who’ve jumped into saved the day (whether for culture or to drive down retention costs).

2016 Data from the Life and Market Research Association showed that voluntary benefits spend, on conventional offerings like life insurance, have continued to grow.

What’s scary is that even in a day were costs are jumping and employer benefits spend is following, many studies still show that there’s still a gap between employee need (in places like student loans) and more common benefit offerings. Could the scary doom of today’s situation be that employers are spending in the wrong places?

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by Jovan Hackley | May 30, 2017

by Jovan Hackley | May 30, 2017

by Jovan Hackley | May 30, 2017