Employees' debt pressure: A Q&A with Ellen Pedersen

Financial instability is plaguing U.S. workers. In return, employees’ mental health declines with their financial health. However, employers have the chance to play an increasingly involved and impactful role in supporting employees’ financial wellness.

So says Ellen Pedersen, head of product at Upwise, a financial wellness app. Pedersen shares their thoughts on how employers can help.

The financial health of America’s workforce is declining, and debt seems to be a leading culprit. This is according to MetLife’s 2023 Employee Benefit Trends Study (‘EBTS’), which found debt to be a leading cause of poor financial health for over 1 in 3 U.S. employees. Why is debt  such a pressing issue for the current workforce – and who is feeling the impact most?

Right now, we know the workforce is financially strained, as only 55% of U.S. employees feel financially healthy – down from 64% in 2022. From uncertainty around job security to the rising cost of living, a vast majority of U.S. employees are struggling to stay afloat financially day to day, let alone save for the future. For those also carrying the weight of student loan debt, this can feel like a crushing burden.

More than 43 million Americans have student loan debt, with the vast majority holding federal loans. Experts estimate that over 9 million public service workers with federal student loans are eligible to pursue debt cancellation through the federal Public Service Loan Forgiveness (PSLF) program, yet fewer than 15% of them have filed paperwork to track their progress toward debt cancellation under PSLF.

For more than 14 years, the federal government has advertised public service workers’ right to debt relief under PSLF, but few have been able to benefit. According to one government estimate, as many as 1 in 4 U.S. workers are potentially eligible, yet only 5% of the eligible population (or approximately 453,000 borrowers) have qualified for forgiveness, according to the Department of Education’s data as of February 2023.

While payments on federal student loans have been on pause since the start of the pandemic, the Department of Education recently confirmed that payments would resume in October. This means that borrowers who are already financially strained will be expected to pay an average of $400 per month in repayments, unless they qualify for relief.

The PSLF program has the power to significantly reduce one’s burden of debt, which can truly transform an individual’s financial picture and ultimately increase their quality of life. Delaying applying is delaying obtaining material relief, so eligible employees should act fast to assess their qualifications and if eligible, submit applications. However, it can be challenging for borrowers to navigate the complex application process, which often results in fewer applicants qualifying – but there are services that can help, and we’ll talk about one of those in a bit.

How do these financial challenges impact employees’ mental health, and what are the implications for employers that they need to pay attention to? 

The weight of carrying student loan debt can take a serious toll on employees’ wellbeing, capable of significantly deteriorating ones financial and mental health – from prioritizing monthly loan payments over other financial goals to potentially feeling stressed and anxious about the amount of debt.

As the financial health of the workforce continues to decline, employees are voicing an increasing need for their employers to prioritize and support their mental and financial wellbeing. Sixty-two percent of employees say they are looking to their employer for more help in achieving financial security through employee benefits (up from 57% last year).

MetLife’s annual Employee Benefit Trends Study also found that supporting workers’ financial wellbeing can effectively improve key business outcomes like productivity, loyalty, and engagement. When employees’ financial health declines, so does their holistic wellbeing and happiness at work, which in turn, negatively impacts their productivity levels and job loyalty. In fact, the proportion of U.S. employees who say they are less productive at work because of financial worries has steadily risen year over year, having increased to 36% in 2023 (up from 32% in 2022 and 27% in 2021).

Related: Supplemental health & financial wellness benefits: Providing value beyond a paycheck

How can employers support employees’ financial wellness, especially those dealing with the added stress of student loan debt?  

As employers play an increasingly involved and impactful role in supporting employees’ financial wellness, benefits can serve as an excellent conduit to providing the proper guidance, education, and tools they need to feel financially confident and secure. Providing access to resources can help employees get educated about debt and other key topics, build positive financial habits, make real progress towards goals, and ultimately gain confidence in their financial health.

When we learned that federal student loan repayments would resume in 2023, we knew we had to act fast to bring employers an effective solution and help eligible employees find relief.