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Why Student Loan Refinancing Could Be Hurting Your Employees

It’s all over the media these days. From politicians to professors, everyone seems to have an opinion about how to help solve the student loan crisis in America. And when you read that student loan debt has now passed $1.5 trillion, you see there’s pretty good reason to be worried.1

Leaders in the HR industry have taken notice of the crisis, and their latest financial wellness offerings are all about helping workers with these loans. It’s having such an impact on hiring that both companies and job seekers are starting to see the concept of helping with student loans as an essential part of a benefits package. All told, 71.4% of workers who have student loans agree that finding an employer who offers a loan refinance benefit would either be “very important” or “somewhat important.”2  To put it bluntly, this issue has recruiting power.

It’s encouraging to see that this issue is getting traction in the workplace. After all, the huge debt load causes plenty of stress for the borrowers—and it has an impact on employees both at home and on the job.

What’s less encouraging is how most wellness programs are addressing it—through some form of refinancing. This isn’t getting the job done! In fact, it often makes the loan situation worse for employees.

If you’re looking for a financial wellness benefit for your business, chances are you have the student loan crisis in mind as something to address. That’s a smart move! But to get a clearer picture of what’s working and what’s not, let’s take a closer look at the hot trend of loan refinancing—and why we think it’s a bad deal for you and your workers.

Student Loan Refinancing Can Often Make a Bad Situation Worse

Wouldn’t it be great if you really could fix your employees’ student loan mess with the flip of a switch? Obvs! But when you really look at it, refinancing tends to hurt rather than help your employees’ finances. Here’s why.

  • Less protection. Most borrowers have a mix of federal and private loans they took on to pay for college. To refinance, they’ll be combining all the debts into a single private loan. Here’s the thing: Having one monthly payment may sound simpler, but it turns out to be more complex. That’s because the employee will often lose several protections that come along with federal loans—things like loan forgiveness due to permanent disability, benefits for active-duty service members, or even qualifying for deferment, forbearance and affordable repayment options. Dropping those protections is a terrible way of building financial wellness!
  • Higher interest. That shiny new refi loan? Employees need to take a long, hard look at the interest rate before signing up. Most federal loans have fixed rates that are relatively low. The point of refinancing any loan should be to get either a lower interest rate or a shorter term for payoff. And if your employees can do either one of those, refinancing could actually be a smart move. But in all too many cases, employees refinance just to get a lower monthly payment, which is only a Band-Aid for their real trouble (see how that works out below).

They may even be willing to take on a higher interest rate and stay in debt longer just to pay less per month. Even worse is the concept of taking on a new variable rate, meaning that the monthly interest payment could rise at any time. Whether it’s a higher fixed rate or a variable loan, your employees are looking at a longer stretch in debt—the absolute last thing you want your workers to have to deal with.

  • No ownership. The worst drawback of refinancing? The way it hides the real problem with a fake solution. It’s like sticking a Band-Aid on a brain hemorrhage. Seriously! The patient (or the borrower, in this case) might feel a little better for a little while because they’ve lowered their monthly payments. But they’ve signed on for a longer term of debt and more interest payments. And sooner or later the real danger is going to rear its ugly head: the spending habits that got them there in the first place and the need for a clear plan.

Employees struggling with student loans don’t need help shuffling the numbers on their financial statements—they need serious behavior change! Refinancing might make workers feel like they’ve done something (anything) about the student loan crisis in their lives, but it does nothing to help them take ownership of their money goals.

Good News: Workers Are Paying Off Their School Loans Without Refinancing

As you can see, offering workers the chance to refinance and calling it financial wellness isn’t just inaccurate—it’s downright dangerous! It has the potential to make a bad financial situation worse, and it delays the only thing that can really help: behavior change.


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At SmartDollar, we’ve met millions of employees at thousands of companies who achieved real and lasting change with their finances. And that includes many who started the program while knee-deep in student loans!

Josh and Lindsey from Dallas, Texas, are just one inspiring example. When these sweethearts graduated from college a few years ago, they started life together with a lot of hope and a mountain of debt—$122,000 to be exact. As you can probably guess, the majority of that was in the form of student loans. Somehow, those two ingredients (hope and debt) just didn’t mix well. Josh and Lindsey both knew that unless things changed dramatically, it would be hard to keep the hope alive.

Today, their hope for the future is stronger than ever, because they’re totally out of debt! The real change in their prospects began when Josh’s dad recommended that he listen to some programs from Dave Ramsey. Dave teaches everyday people how to take control of their money by emphasizing smart money habits like budgeting, saving and debt elimination. As those lessons were clicking in Josh’s mind, his employer announced they were rolling out SmartDollar as an employee benefit! It applies Dave’s same no-nonsense approach to financial wellness.

It wasn’t long before Josh shared the digital lessons and tools with Lindsey. Both were excited and on board with the idea of building new habits and changing their financial future!

“I think the growth we’ve seen in our relationship is by far the most profound,” says Josh. “I think that’s the strongest thing, and what we count as the biggest blessing.”

Lindsey recognized the value of the program too.

“What surprised me the most about SmartDollar was the progress we made together,” she says. “How we were able to pick up momentum because we were working together and were on the same page as we were talking about it.”

Now, the couple have a complete plan in place. With their student loans a distant memory, they are completely focused on monthly budgeting and investing in their long-term dreams. They’ve moved from crisis living to the experience of real hope.

Want to learn more about how you can help employees solve the student loan crisis and deliver real financial wellness to your people? Check out SmartDollar today!

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Ramsey Solutions

About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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