Student debt is a major source of economic stress for most employees: 93% of private sector employees and 89% of public sector workers with student loans consider their debt levels problematic, according to a new report from MissionSquare Research Institute. As personal finances become the biggest source of stress across both the public and private sectors, student loans are considered a major problem by more than 44% of U.S. workers who carry student debt.

“Employers in the current labor market continue to face challenges recruiting and retaining talented staff,” said Gerald Young, Senior Researcher, MissionSquare Research Institute, which gathered data from its most recent survey or more than 2,000 public and private sector employees, Student Debt Impacts on Public and Private Sector Employees, “While salary is one factor in maintaining a stable workforce, other intangibles like financial stress and burnout, and more positively, organizational culture and personal satisfaction are also important. Ignoring any of those may lead to staff to feel like they will see better results elsewhere.

“State and local government employees were more likely to think that private sector companies provided more generous student loan support, while private sector workers felt that the public sector provided better support. In both cases, at least 70% of workers with student debt see that as a factor in considering whether to seek other employment.”

Student loan debt impacts employment decisions, particularly in the public sector where salaries are typically lower: Public employees (38%) are more likely to view student loan debt as a major factor in seeking other employment compared to private sector staff (25%). More key findings:

• Personal finances are the primary source of stress for both public and private sector employees.
• While credit card balances are the most common form of debt, student loans cause more worry.
• At least 15% of workers with student debt missed payments three or more times in the past six months.
• 15% of workers expect to take more than 20 years to repay their student debt.

"This research is crucial because student debt significantly impacts both employees' financial well-being and employers' ability to attract and retain staff, particularly among public employees," said Zhikun Liu, Ph.D., CFP, Vice President, Head of MissionSquare Research Institute. "Our new report provides essential data to help state and local leaders consider whether initiatives like tuition reimbursement or loan repayment assistance could help strengthen the public workforce. This study also offers a range of actions employers can consider to alleviate issues associated with student loan burdens and stress."

“Personal finances were ranked as the leading cause of employee stress, with 40% or more noting that they are regularly stressed about their finances while at work – a potential drag on their productivity and focus,” said Young. “While credit card debt, car loans, and mortgages are more prevalent, paying back student loans was most commonly cited as making respondents extremely or very worried. Having current or prior student debt is more common in the public sector, and within that, it is seen as most problematic within health care and other professional occupations.

“While student debt can sometimes be thought of as related to the immediate post-college years, the projected repayment period for current student debt is longer than what respondents reported for prior student loans, often stretching to 10 or more years. In addition, employees may be incurring additional debt during their working years (including 15% of private sector and 22% of public sector staff) or working to pay off debt for their spouse (7% of respondents) or other family members (6%). Among both public and private sector employees, at least 1/3 reported having missed at least some scheduled payments in the last six months.”

Total student debt nationally amounts to more than $1.7 trillion, with individuals in fields like nursing, engineering, teaching, and other fields often attempting to balance their career plans and other financial obligations with student loan repayment. In recent years, there have been various federal initiatives to suspend or forgive student debt. Although some of these efforts remain subject to litigation or debate, this study highlights the importance of student debt in employee recruitment and retention.

“In the Research Institute’s survey of public sector HR managers, seeking opportunities for advancement is one of the key factors cited in exit interviews,” said Young. “This informs employers’ emphasis on professional development training, but also other educational initiatives like tuition reimbursement, loan repayment assistance, or paid time off to attend classes. It is particularly important for the 5% of employees still working to meet their current position’s education requirements.

“While some employees feel employers should not offer assistance with student loans since not all employees have them, across both the public and the private sectors, employees were more likely to feel that employers have a responsibility to help employees tackle such debt.”
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Related: SECURE 2.0 rolls out new student debt (and education) benefits in 2024

Some key takeaways from the report for employers:

Consider skill-based recruitment: This does not mean ignoring education as a pathway toward career preparation, but rather acknowledging that alternate pathways may exist to acquiring the relevant skills and experiences.
Tuition reimbursement: If there is a disconnect or a lack of awareness, ensure that benefits like this are discussed not just at onboarding, but also as part of regular communications with employees.
Unused vacation credit: Many employers allow for vacation above a certain balance to be converted to cash.