Leveraging Student Loan Repayment As A Tool For Financial Literacy

Leveraging Student Loan Repayment As A Tool For Financial Literacy – There are many sources of employee stress, but one is often highlighted in the media and continues to adversely affect the financial security of many employees: Over $1.7 trillion in outstanding student loan debt. According to a March 2021 Prudential online poll of student loan borrowers with $5,000 or more in debt, 42% said their student loan debt triggers higher levels of mental and emotional stress than other types of more serious debts.

There are several compelling reasons to help employees deal with the daunting cost of higher education by offering student loan repayment assistance and/or contributing to a 529 college savings plan:

Leveraging Student Loan Repayment As A Tool For Financial Literacy

According to the Society for Human Resource Management, only 8% of employers currently offer student loan repayment benefits, only 11% offer 529 plan education/opportunity, and only 2% offer contributions to 529 plans. Thus, those who provide these forms of assistance have the opportunity to stand out in a competitive recruiting environment. By offering one or more forms of assistance, employers can express their concerns about the financial and emotional burden that education costs may place on employees.

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As women (who owe two-thirds of outstanding student loan debt, according to the American Association of University Women) and blacks (who owe an average of $25,000 more than white graduates, according to the Education Data Initiative) face With greater student loan stress, student loan assistance and college savings support can help achieve racial and gender equality. The benefits can also support LGBTQ employees (who are more likely than non-LGBTQ employees to have student loan debt, according to the UCLA School of Law’s Williams Institute).

Gallup’s recent State of the Global Workplace: 2021 Report found that nearly half of U.S. workers across industries are actively seeking or pursuing job opportunities. Offering more benefits to help lower the cost of higher education helps minimize turnover and fosters loyalty. The cost of replacing an employee can be one-half to two times the employee’s annual salary.

Fortunately, employers have unprecedented opportunities to support employees struggling with student loan debt. Tax-free student loan repayment relief was first made available to employers through the CARES Act of March 2020 and extended for five years through the Omnibus Appropriations Act of 2021, which was signed into law in December 2020. Therefore, according to Section 127 of the Internal Revenue Code, starting from December 31, 2025, employers can contribute up to $5 and $250 per employee per year through the Educational Assistance Program, and neither the company nor the employee has to bear the resulting tax liability.

Helping employees pay off student loan debt not only reduces financial and emotional stress, it can also improve employees’ ability to save for retirement, buy a home, and start saving for other goals.

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In addition to helping employees pay off student loan debt, employers can provide valuable financial education on how to avoid future student loan debt. One of the best ways to help employees avoid or minimize student loan debt is to offer education and matching contributions to 529 college savings plan accounts as a voluntary financial wellness benefit.

With 67% of respondents unable to identify a 529 plan as an education savings vehicle (according to the May 2021 Edward Jones 529 Awareness Survey), employers can play a critical role in providing much-needed education and opportunity about these tax-advantaged savings and access to them play a vital role. investment vehicle. Offering a 529 plan as a financial wellness benefit in the workplace can go a long way in reducing stress for those looking to pursue higher education for themselves or their family members.

The past 20 months have shown us the strong link between mental and financial health issues, and how financial stress among employees can lead to increased absenteeism, higher healthcare costs and higher employee turnover, all of which can be costly to employers. cost.

Three-quarters of workers rank student loans and 529 college savings support as the top overall benefits employers want (with 23% of them ranking them as the second-highest benefit behind health benefits). Employers are in a unique position to support employees at any stage in the educational lifecycle – whether planning for an advanced degree, repaying the cost of a degree already earned, or saving for a loved one’s future education. Offering such benefits can help improve employees’ financial well-being, increase their commitment and loyalty, and differentiate employers from the competition for top talent.

Debt To Asset Ratio Calculator

Patricia Roberts is Chief Operating Officer of Gift of College, Inc., where she provides financial wellness benefits to employers of all sizes to address the cost of higher education. She is the author of “The 529 Route: A Parent’s Guide to Saving for College and Career Training with a 529 Plan,” and through her key role at Citigroup for more than 20 years, she has helped tens of thousands of families avoid hundreds of million dollars of student loan debt. She recently saved her son debt-free while he was in college, saving a little at a time by withholding a little from his salary at work. A leveraged buyout (LBO) is the use of heavily borrowed funds to acquire another company (bonds or loans) to meet the cost of the acquisition. The assets of the acquired company are often used as collateral for the loan along with the assets of the acquiring company.

In a leveraged buyout (LBO), the debt-to-equity ratio is typically 90%. Due to the high debt/equity ratio, the bonds issued in the acquisition are usually not investment grade and are known as junk bonds.

Leveraged buyouts are known for their particularly ruthless and predatory tactics, as the target company often won’t approve the takeover. Aside from the hostile move, there is a bit of irony to the process in that the success of the target company in terms of assets on its balance sheet can be used by the acquiring company as collateral.

The purpose of leveraged buyouts is to allow companies to make large acquisitions without investing a lot of money.

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However, there is usually a requirement that the acquired company or entity be profitable and growing in each case.

Leveraged buyouts have a notorious history, especially in the 1980s when several notable takeovers resulted in the eventual bankruptcy of the acquired companies. This is mainly due to the fact that the leverage ratio is close to 100% and the interest payment is too large, which makes the company’s operating cash flow unable to repay the debt.

One of the largest leveraged buyouts on record was the 2006 acquisition of Hospital Corp. of America (HCA) by Kohlberg Kravis Roberts & Co. (KKR), Bain & Co. and Merrill Lynch. The three companies value HCA at about $33 billion.

While the number of such large buyouts declined after the 2008 financial crisis, large leveraged buyouts have started to increase during the COVID-19 pandemic. In 2021, a group of financiers led by the Blackstone Group announced a leveraged buyout of Medline, valuing the medical device maker at $34 billion.

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A leveraged buyout (LBO) is when one company tries to buy another company, borrowing large amounts of money to finance the acquisition. The acquiring company issues bonds against the combined assets of the two companies, meaning that the assets of the acquired company can effectively be used as its collateral. While large-scale leveraged buyouts are often viewed as predatory or hostile, they have seen a resurgence in the early 2020s.

A leveraged buyout (LBO) is often used to take a public company private or to spin off parts of a business by selling an existing business. They can also be used to transfer private property, such as a change in ownership of a small business. The main advantage of a leveraged buyout is that the acquiring company can use a relatively small portion of its own assets to acquire a much larger company.

Equity firms typically target established companies in mature industries for leveraged buyouts, rather than emerging or more speculative industries. The best candidates for leveraged buyouts typically have strong, reliable operating cash flow, a well-established product pipeline, a strong management team, and a viable exit strategy so that the acquirer can realize the gains.

A leveraged buyout (LBO) is a process in which one company uses most of its borrowed funds to execute a transaction to acquire another company. Companies often conduct leveraged buyouts to take companies private or divest parts of existing businesses. Debt-to-equity ratios are typically around 90% to 10%, which usually means bonds issued in acquisitions have low credit ratings.

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Leveraged buyouts are often seen as a predatory business strategy because the target company has little control over approving the deal and its own assets can be used as leverage against it. LBOs declined after the 2008 financial crisis, but activity has increased in recent years.

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