- Your business may benefit from pursuing student debt holders as a market segment.
- Helping employees manage their student debt can be a smart recruiting and retention strategy.
- If you’re a small business owner, getting a handle on your own student debt can be critical to your success.
- This article is for entrepreneurs who want to adapt their business strategies to student loan uncertainty.
Americans hold more than $1.75 trillion in student loans, and the average debt load among private and federal loan holders is more than $40,000. These debts have a major impact on holders’ decisions in terms of where they work, what they buy and whether they can start a business.
Though the Biden Administration pushed through a student debt relief package in the summer of 2022, the program is now under review by the Supreme Court. Even if the program is ultimately implemented, it will result in the forgiveness of only a small fraction of total student debt.
Business owners should factor student loan status into their hiring, retention, marketing and financial decisions.
The uncertain state of student debt relief
To alleviate borrowers’ burden during COVID-19, the U.S. Department of Education announced a temporary payment freeze on all federal loans in March 2020. The freeze has been extended multiple times, and is now scheduled to expire in June 2023.
In August 2022, the Biden administration attempted to take more permanent action, forgiving $10,000 per borrower for more than 40 million people and an additional $10,000 for certain Pell Grant recipients, as well as instituting reforms that would cap borrowers’ repayment based on their income. The program was challenged in the courts, and will be heard by the Supreme Court in February 2023.
Whether the freeze will be extended again in 2023, and how the Supreme Court will rule, are both open questions with massive implications. Experts anticipate that, if the Supreme Court does not allow the Biden Administration’s plan to go into effect, the administration will pursue other routes to ease the burden for student loan holders.
Regardless, there is room for business owners to maneuver even in this uncertain environment, and millions of Americans will still have student debt regardless of how the situation is resolved. Unsurprisingly, student loans loom large in holders’ decision making, and several studies have also found that they cause significant stress, anxiety and even suicidal ideation among many borrowers.
Key takeaway: Though the situation is uncertain, borrowers may need to repay their loans again starting in June 2023, and should be prepared for the Supreme Court to block the $10,000 forgiveness plan.
How to understand student loan holders
More than 42 million Americans hold student debt. That’s a massive market. Depending on what your business does, it may be worth making a dedicated effort to reach that market.
Reaching borrowers starts with understanding who they are. Consider a few pieces of data from Student Loan Hero:
- In more than 25 percent of families with student loans, the primary earner doesn’t have a college degree.
- More than 3 in 10 families in the lowest quarter of net worth hold student debt, with a median student debt load of $32,000. Meanwhile, 5.7 percent of families in the top 10 percent of net worth hold student loans at a median of $20,000.
- Student debt may be holding back married couples from having children. Couples without children have a median student debt load of $35,000, nearly $16,000 more than couples with children.
These figures paint a picture of borrowers who tried to invest in their futures and are now genuinely struggling with loans. While the political discourse around student loan forgiveness has at times veered into implications that holders are well-educated higher earners who want a handout, this data shows that to be untrue. If you want to reach this market, focus on more sensible and affordable products rather than luxury goods.
Assuming that your product is a fit for student loan holders, tailor a portion of email and other forms of marketing to them. Several companies sell lists of contact information and buying habits for student loan borrowers which, when combined with smart email marketing and social media strategies, can yield new customers. If you see initial signs of success after pursuing these strategies, it may even be worth investing in new or upgraded email marketing software or exploring text message marketing to build on this market further.
If you want to go beyond buying lists of loan holders, universities are increasingly open to marketing partnerships that expose students and alumni to products that may be of interest to them. Depending on your product, consider reaching out to local universities to see if a relationship with their students and alumni who hold loans is viable.
Employees and applicants need information
You can send a powerful statement to employees by helping them manage their debt.
The simplest and lowest-cost approach is to provide information. According to Bridget Haile, VP of operations and client experience for Summer, a B Corp that helps borrowers navigate the repayment process to maximize their savings, “The biggest concern we hear right now is the information vacuum. Borrowers don’t know how all of these headlines and announcements apply to them, or what they should do next.”
Employers can assign a member of the HR team to share regular updates on changing rules and policies from reliable sources such as Federal Student Aid and the Department of Education, or expert advocacy groups like the United States Student Association and the Student Borrower Protection Center. Employers can also share tips on avoiding fraud in this uncertain moment because, according to Haile, “scams and bad actors are taking advantage of the confusion in order to access personal and payment information.”
Even with accurate information about the changing landscape, many borrowers will still feel overwhelmed. For employers who want to go further in helping employees make decisions, consider providing employees with tools such as Sparrow, which offers comprehensive and unbiased information about student loan refinancing options. According to Sparrow CEO Harrison Hochman, “Many people don’t even know that private refinancing is a possibility or what the implications would be for them. Putting all the information in one place makes comparison much easier.”
How to help manage the burden of student debt
Going beyond information, there are several ways employers can help employees manage the costs of their loans.
Many employers don’t realize that they can make a tax-free $5,250 annual payment toward their employees’ student loans through 2025. As of 2020, according to SHRM, only 8 percent of companies have made this benefit available. In a tight labor market, this program can make you stand out from the crowd as you hire and try to retain employees. In addition to providing information, Sparrow and similar tools can facilitate the delivery of this benefit.
Some employees may even want to factor income-driven repayment (IDR) into their compensation structure. IDR allows borrowers to cap their monthly payments at a percentage of their discretionary income, though in the past this often caused the balance to balloon. The Biden Administration’s recent action modified IDR to make it significantly more favorable to borrowers, and many experts see this as an area for further action.
Depending on an employee’s situation, they may want to keep their income relatively low and receive a greater portion of their compensation in the form of health care coverage and contributions to their retirement accounts, or even prioritize non-monetary benefits like a flexible work schedule to minimize their need for expensive child care.
Working with employees to make these benefits available not only provides them with a material benefit, but also sends the signal that you understand and empathize with them. These benefits can help you land the best candidates in your hiring process, so highlight them in job descriptions and initial interviews, particularly for more junior roles.
Tip: Employers can repay up to $5,250 annually of an employees’ student loans, tax-free.
What about your own loans?
Entrepreneurs have a relatively small student loan debt, with an average burden of just $18,000 according to Student Loan Hero. Still, if you find yourself simultaneously managing your student loans and your own business, think through how the two interact. First of all, don’t assume the current forgiveness will last forever. According to Hochman, “Borrowers need to err on the side of caution. Act as if payments are going to restart tomorrow, and ask yourself if you’re going to be ready.”
Next, make sure you understand your loans and how they affect your overall financial picture. Nearly 10 million student loan borrowers had their federal loans transferred from one servicer to another since payments have been paused, which can have a wide range of implications. Look up your loan at Federal Student Aid to see if this happened to you. You’ll need these details when, for example, you’re choosing the best business loan for you or selecting another financing option while simultaneously paying down your student loans.
Finally, consider the same options that you might offer to employees for yourself. Depending on how you structure your company, you may be able to pay off portions of your own loans tax-free as a form of your compensation. If you’re worried about your student loans over the long term but feel relatively comfortable today, explore with your accountant whether you could reduce your salary, keep more equity in the business, and qualify for IDR.