Employers Are Causing the Student Debt Crisis

Well, maybe that’s a bit harsh. But I will say most companies certainly aren’t doing anything to help. According to GALLUP, saving for college is now the #1 financial concern among families, ahead of even retirement. But while their benefits package almost always includes retirement help, healthcare, insurance and discount programs (anyone know if those discount networks get you 50% off a college degree?), employees are left to go it alone when it comes to saving for their children’s higher education. According to GALLUP, saving for college is now the #1 financial concern among families, ahead of even retirement.

Now before you think, ‘Why is it a corporation’s job to help families save?’ let’s take a quick history lesson. Back in the early ‘80s when social security funding tightened and pension/retirement costs for businesses rose, corporate America reacted quickly by introducing and encouraging 401(k) plans. One can easily draw a parallel between that situation and the one families are currently in — endowment dollars diminishing and the cost of college skyrocketing. Yet corporate America is moving at a glacial speed to offer help.

Student debt’s effect on the economy

Listen, America has a serious student debt problem, which has more than quadrupled from about $250 billion in 2003 to $1.2 trillion today.[1] This financial burden is causing college graduates to postpone marriage, retirement, children, and starting businesses.[2] In other words, student loan debt is postponing the American Dream.

While many people out there have an opinion on how we can fix, or at least put a dent in this crisis, I can tell you there is one foolproof way to make a difference. Parents need to save for their children’s higher education. In fact, a paper titled ‘Student Loan Debt: Can Parental College Savings Help?published in the Federal Reserve Bank of St. Louis Review, concluded that parental college savings might be the only solution. It goes on to say:

In this study, we find evidence to suggest that parental college savings can be part of a strategy to help reduce student debt… we found nothing else that reduced the odds of graduates having student debt…”

And this seems to be a logical conclusion, right? Save for college now, borrow less for college later. In fact, children whose families create a plan to save for college borrow about half as much as those without a plan. So it begs the question, if 93% of parents believe that their child is likely to attend some type of higher educational institution, why aren’t more people saving?[3]

Besides the obvious reason that some families lack financial resources, many simply don’t know how to navigate this complex arena. I mean, there are over 90 different tax-advantaged 529 college savings plans — all with their own unique characteristics, pros and cons, Coverdell ESAs, UTMAs, savings accounts, etc. It’s no wonder parents get confused. And where are they supposed to turn for help?

A potential solution

It seems to me, a logical place to start would be their employer. While HR departments are finding clever ways to appease employees with unlimited vacation time, masseuses, dog sitting services, etc., they are glossing over a benefit that could truly make a difference in society.

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Of course, I’d love to have free, 15-minute massage complements of my employer once a week. I’d also like to take a cruise every month instead of saving money, but I’m intelligent enough to realize short-term satisfaction is not worth sacrificing long-term goals. Am I naïve to think our nation’s employers, who are supposed to be experts in favoring long-term growth over short-term gains, should believe the same?

Just today I went on the careers page of a major Fortune 500 company to browse their benefits offering. Here’s what I found:

  • Major Health Benefits (insurance, dental, vision, disability)
  • Employee Assistance Program
  • 401(k)
  • Health Savings Account
  • Flexible Spending Accounts
  • Commuter Benefit Policy
  • Life Insurance
  • Pet Insurance
  • Group Legal Services
  • Cancer Insurance
  • Tuition Aid
  • Adoption Reimbursement
  • Discount Shopping Program

Nearly every aspect of a family’s physical and financial life (and their pet’s) is taken care of here except for their top financial concern. It just seems odd to me. Especially when helping save for a child’s college education by say, offering an employer-sponsored 529 plan, costs next to nothing.

Of course, there’s no quantifiable way yet to determine just how big of an impact employer-sponsored college savings accounts could have on the student debt crisis, but the aforementioned paper seems to think it’s a great idea, concluding:

…linking college savings opportunities to employers may better equip parents to perform this important protective function in their children’s lives.”

Now, I’m not an HR manager and I’m sure there are a host of factors to consider when piecing together a benefits package — budget, participation rates, communication, etc. But this is an extremely low-cost, high value benefit we’re talking about. And if it’s voluntary, who cares about participation rates? If you can conclude that your employees need pet insurance, I’m sure you could roll out college savings without anyone batting an eye.

A call to arms

I’d like to end my harangue here with a call to action to employers of all sizes. Help your employees with children understand the benefits of saving for college and the options available. Help quell one of society’s biggest issues. Help deflate this student debt bubble so those who attend college in pursuit of the American Dream actually appreciate their experience instead of being cynical of it. And this isn’t just coming from someone who works in the college savings industry. It’s coming from someone who is part of this $1.2 trillion problem and would like to think if his parents’ employers helped them save for college, he’d be in a better financial position than he is in today.


[1] Hiltonsmith, Robert. At What Cost? How Student Debt Reduces Lifetime Wealth, Demos.org

[2] Holland, Kelley, The high economic and social costs of student loan debt, CNBC

[3] Id.