New Tool Helps Employers Pay Off Employees’ Student Loans
30 years ago, 401(K) retirement plans were a novel recruitment tool. Now, they’re a standard employee benefit. And Gradifi, a new startup out of Boston, Mass., is trying to make the same thing happen with student loan paydown programs, or SLPs.
The startup recently created a platform that enables companies of all sizes to pay some of their employee’s student loan debt back for them. With millennials expected to make up the majority of the workforce by 2020, and with nearly three quarters of them saddled with student loan debt, Gradifi aims to get companies to foot some of the cost associated with a post-secondary degree. “Companies are interested in trying to recruit and retain millennials, and 71% of all millennials have student loans,” says Tim DeMello, founder and chief executive officer of Gradifi. Millennials don’t necessarily care about a great retirement plan, but they do care about reducing their student loans, he says.
The student loan debt crisis is permeating every aspect of borrower’s lives, causing people to put off getting married, purchasing homes and even saving for retirement. And it’s only expected to get worse with the cost of college education increasing. In the 2014, academic year tuition and fees increased 3.7 percent at private nonprofit colleges increased 3.7 percent and 2.9 percent at four-year public schools, higher than the rate of inflation. And it’s a particularly critical issue for companies that recruit on college campuses and that count a lot of millennials among their workforce.
PwC embraces Gradifi to help millennial workers
Take global consulting firm PwC, whose average employee is age 29 and which hires 11,000 employees from college campuses each year. Recognizing a need to help its employees pay down some of their heavy student loan debt, PwC teamed up with Gradifi and committed to make monthly payments for their new and existing employees who aren’t at the manager level. According to Thomas Codd, vice chairman and U.S Human Capital Leader at PwC , starting in the spring of 2016, PwC will deposit $100 a month into a Gradifi account, which will then go directly to the lender, to help pay down an employee’s debt. PwC will do that for six years, or until the person makes partner. With a six-year track to manager being the norm, employees could see their student loan debt reduced by $7,200. Existing employees can take advantage of the plan up until their sixth year or until the make manager, whichever comes first. The benefit is treated as income and as a result is taxable.
While $7,200 may not seem like it will going to make much of a dent if student loans are in excess of $35,000, which is the average amount, every penny helps.
“Think about these loans which have 5% or 6% interest. If you avail yourself of [the [program] for six years, the interest savings could be two or three years off the loan,” says Codd of PwC. “Student loan debt is really important to this generation. Employers play a critical role in solving this problem that is facing so many college students today.”
More than 100 companies signed up
While PwC is the first corporation to use Gradifi, it’s not the only one. According to DeMello, there are about 100 companies on the list to launch in the New Year. What’s more, he says the company will roll out other brand-sponsored programs that aren’t corporate-driven, like a Gradifi debit card where 1% of all purchases goes toward the card holder’s loans, or a car purchase in which the cash back comes in the form of $1,500 toward loans. DeMello says Gradifi is also looking at a crowdfunding service to help lower the debt load. “The goal is to reduce 25% to 50% of the student loan through a number of sources,” says DeMello.
Taking a page from LRAP
Student loan payment plans aren’t offered by many private companies in the U.S. today, but they are a tried-and-true tool for certain industries that are trying to lure people to lower-income or less desired jobs. It’s also a way to retain workers in competitive industries. Known as employer-based loan repayment assistant programs, or LRAPs, companies, schools and organizations give employees or alumni a stipend to go toward paying off their student loan debt. The money is counted as taxable income, and the amount can differ from one employer to the next.Martin Health System, for example, offers a LRAP for nurses, pharmacists and physical or occupational therapists. Each group is eligible for a different amount of money based on the education requirements for the positions. For instance, nurses get $2,000 a year for up to four years, while therapists are eligible for $3,000 and pharmacists receive $4,000. LRAPs are also very popular among law schools, with at least half offering some sort of aid to graduates.