Financial Stress

What can be done to stop graduates arriving in their careers burdened by financial stress?

Financial stress is increasingly linked to depression and anxiety, then because of that, loss of productivity in the workplace.

Mindfulness is being embraced in the corporate sector as a wellbeing program response to heavy stress at work. Its advocates are optimistic, but even if it’s as effective as hoped, there is no doubt it is a solution to symptoms of other problems.

As the wellbeing microscope begins to sharpen its focus on exactly what stresses us at work, it seems inevitable that the effects of a universal form of debt for the next generation of corporate leaders – student loans –will come in for scrutiny.

In other words, could the collective stress burden of student debt – government-funded and private – be considered an avoidable cost by business?

Today Australian degrees cost between A$20,000 and A$40,000, but by 2026 the cost of the average three year degree in Australia will have swollen to over $A50,000; four year degrees, especially those from prestigious universities in high demand subjects would costs substantially more.

Zookal found 21 per cent of students are worried about how they will pay back their debt, while 22 per cent are already stressed about non-tuition costs, like textbooks. Those numbers sound worrying but are low compared to debt-related stress among tertiary students in the United States.

In the Princeton Review’s College Hopes and Worries Survey, 98 percent of student and parents said they were experiencing some level of anxiety, with more than 70 percent of them pegging it as “high” or “very high.” Since 2014 the largest single stress factor was debt.

Where the stress really bites in is in the worry over repaying a student debt when it comes time to work and juggle other costs and debts: according to Universities Australia, repaying a law degree could take up to 25 years, while a three-year degree could take 14 years to repay, according to Business Insider.
According to Metlife’s 2016 Employee Benefit Trends Study, nearly a third of Australian employees took time off to deal with a financial issue and 41 per cent were distracted from their work due to money worries.

People in the salary bracket $A50,000 to $A74,999 are the second-most financially-stressed, behind those who earn under $50,000, AMP’s 2016 report, Financial Wellness in the Workplace, said. Also, women are more likely like to be financially-stressed than men.

Certainly as long as there is a cost of for tertiary education payment – and for most people studying in Australia repayment is a fact of life. In Australia a fortunate 10 per cent of student have their fees paid for by their parents, but according to textbook rental company Zookal, 80 per cent of students only begin repaying their student debt once they have begun their career.

The current threshold at which graduates must begin to repay their loans (at four per cent per pay packet) is A$54,869, roughly the median starting salary for an under-25 Australian resident bachelor’s degree graduate in 2015. There is pressure to lower that threshold to A$42,000 in order to manage a projected blow-out in Government’s student loan scheme, HECS-HELP.
A law graduate could expect $55,000, a computer science grad $54,000, while an economics or accounting, psychology or veterinarian studies major both faced $50,000. Overall, male graduate starting salaries were $55,000 and females were $53,000.

At present $1.9 billion is never repaid (because students fail to reach the repayment income threshold or move overseas) which is expected to grow to $4 billion by 2026.

A HECS-HELP loan is subject to a negligible interest rate – the Consumer Price Index – and only applied on debts older than 11 months. The rate is currently 1.5 per cent but it has been as high as 3 per cent in 2011.

With the size of student loans growing, the threshold for repayment dropping and work intensification showing no sign of slowing, it’s easy to see where this is headed. Graduates look set to arrive in their careers burdened by financial stress, the single biggest cause of stress for Australians and Americans.

The cost of huge and complex Government student loan systems, as well as inequity, have been acknowledged in a move to free tertiary education by several European countries in recent years. Sweden, Norway and Denmark offer free education – countries that perhaps coincidentally – are all among the 10 happiest countries on earth in many happiness studies.

Things are beginning to shift in the United States, where the student debt crisis is worse. This week, the New York State government rolled out its ground-breaking Excelsior Scholarship program which promises free tertiary tuition for anyone from a family with a combined income of US$100,000. That income test will rise to US$125,000 in 2019.

Tennessee, Oregon, and Minnesota already provide free tuition for institutions with two-year programs, while according to NBC, a dozen other states have pending legislation which would do the same.

American Presidential candidate Bernie Sanders made free tertiary tuition part of his campaign platform – albeit on equity grounds. According to Jeffrey D. Sachs, who edited the chapter, Restoring American Happiness, in the 2017 World Happiness Report, student debt in the US is US$1 trillion and only 36 per cent of people complete a degree.

Perhaps more mindful policymaking as regards the impacts of high education costs and the crippling stress that causes might see a change in direction that would benefit employees and employers alike.

Financial Mindfulness
For Free

Download App today and start reducing your financial stress.