When Credit Suisse sought to figure out why employees weren’t socking away enough money in their employer-sponsored retirement accounts, it found many were diverting their savings to cover student loan payments.
So, as part of a bigger overhaul of its benefit plans, the bank struck a deal with online lender Social Finance Inc., or SoFi, earlier this year to offer a 0.25% interest rate reduction to US employees that refinance their student loans with SoFi.
“If we can help employees stretch their paychecks, they can use those extra dollars to participate in the 401(k) retirement program,” Elizabeth Donnelly, a global HR managing director at Credit Suisse, tells Quartz.
Donnelly also said the perk “is a benefit that attracts employees to the bank and helps differentiate us from some of our peers” in what has become a very competitive labor market for high-skilled employees.
But student loan assistance isn’t just the latest twist in the use of corporate perks like unlimited vacation and free food to attract top-notch employees. It’s an effort by private employers to play a larger role in one of the biggest financial hurdles facing hundreds of thousands of workers.
Student debt has rocketed to $1.3 trillion in the US and dealing with those loans has become a serious problem for employees who have to use their salaries to pay off their education instead of saving the money in a retirement account or for long-term disability insurance.
“If you’re triaging immediate needs, newly-graduated students aren’t focused on saving for some nebulous retirement event at 62; they are focusing on paying off their student loans,” says Jenny Chou, chief strategy officer at student lender Darien Rowayton Bank, which also works with employers to offer student loan refinancing programs designed to help attract and retain workers.
The issue has become a major focus on the US presidential campaign trail and the Society of Human Resource Managers this year noted student loan repayment as a growing employee benefit (pdf).
A recent search on job-search site Indeed.com showed the perk now appears in thousands of job postings. On Tuesday (Sept. 22), global consultancy PricewaterhouseCoopers announced a new loan forgiveness program where its associates will now be eligible to receive as much as $1,200 a year for up to 6 years toward their student loans.
At Credit Suisse, a graduate with, say, a $75,000 10-year loan at 7% interest, could refinance with SoFi at a 3% interest rate and then get an additional 0.25% interest rate reduction, according to SoFi. Under that scenario, an employee could reduce monthly payments to $716 from $871, saving $18,628 in interest over a decade.
While the bulk of the savings will depend on whether an employee can qualify for a lower interest rate with SoFi, the extra 0.25% savings from an employer in this scenario translates into an extra $8 a month.
Plans differ by employer. For instance, Credit Suisse doesn’t pay anything for the arrangement, but many of the 200 employers SoFi works with subsidize the rates even further, paying 1% to 2% interest on an employee’s behalf.
“When I first started proposing this to companies, I used to get blank looks—now it’s becoming a huge priority,” SoFi co-founder Dan Macklin tells Quartz.