Recent graduates are stressed out about student debt. Companies are aggressively competing for top talent.
Those two forces are producing a new workplace benefit designed for millennials: student loan assistance.
SoFi, a five-year old finance company that originates and refinances student loans, began facilitating student-loan repayment as a workplace benefit in January, allowing employers to pay down their employees’ student loans. Seven companies are taking part, and another seven or eight are expected to sign up in the next month or two, said Catesby Perrin, SoFi’s head of business development. Most contributions from employers are modest, around $50 or $100 a month, although one company which places doctors in remote locations, pays $50,000 a year toward their employees’ debt, Perrin said. SoFi itself contributes $200 a month toward its employees’ student debt.
Americans owe more than $1 trillion in student loans, and the average graduate this year will leave college with more than $30,000 of debt. According to a PwC survey, 42% of millennials in the workplace have student loans and 79% said their debt is hampering their ability to meet other financial goals.
PwC began offering a debt-repayment benefit this summer, paying $100 a month toward employee debt for the first six years of their career, using Gradifi, another finance startup . “It’s frankly a Band-Aid to the fact that tuition costs have doubled in the last decade,” said Tim Ryan, the chairman of the accounting firm’s US unit.
While the benefit is still in its infancy, it’s getting the attention of other big employers.
“Philosophically, I love the idea, said Peter Fasolo, the head of human resources for Johnson & Johnson, which has about 126,500 employees and hires 3,000 to 4,000 millennials annually. “I like the notion of being able to say to new employees, ‘Can we help you?'”
The company is considering offering the benefit, possibly as an alternative to a 401(k) retirement fund match, Fasolo said.
One early adopter, Kronos, a Massachusetts payroll management company, contributes up to $500 a year to its employees’ debt repayment using SoFi’s platform. Kronos also offers financial assistance for childcare and adoption. The benefits are not just tools for recruitment, but a potential “life preserver” for employees struggling with debt, says Dave Almeda, Kronos’ head of human resources.
“It’s difficult for employees to be inspired to innovate with financial burdens on their minds,” he says.
Student-loan refinancing and counseling has been offered as a workplace benefit for a few years. It made sense to progress to employer contributions, said Phil DeGisi, the chief marketing officer at CommonBond, another loan refinancer. CommonBond will launch a repayment benefit later this year, and the majority of the 75 employers it works with are interested, DeGisi said.
Unlike 401(k) matches and health benefits, an employer’s contribution to student-loan repayment is considered taxable income for the worker by the IRS. A bill exempting contributions up to $10,000 has been introduced in Congress, and has the support of the Consumer Banking Association, which lobbies for small banks, but its chances of passing this year are slim.
This means that if the benefit is offered in lieu of a 401 (k) match, millennials should probably skip it until it can be offered tax free, said Erik Carter, a financial planner at Financial Finesse. Without tax benefits, it’s just another form of payment, but with less flexibility. Because of how investments compound over time, putting money in a 401 (k) is particularly important for young people, even if freeing yourself of debt might sound more attractive.