Employers Offer to Help Pay Student Loans
It's not uncommon for companies to help with tuition payments for their employees who are continuing their education, especially if they are working toward a professional degree that will help them in their job or with future advancements in the firm. Such a program can be a great recruiting tool.
Unfortunately, these programs do not help a company's recent hires who have already absorbed huge student loan debts on the way to graduation. Gradifi, a start-up technology company based in Boston, has addressed this problem by setting up a platform that allows employers to make direct contributions toward their employees' student loan debts in a secure fashion. Tim DeMello, founder and CEO of Gradifi and a trustee at nearby Babson College, got the idea for Gradifi after a presentation at Babson showing the incredible increases in student debt.
Gradifi already has one high-profile client on board — the massive accounting and consulting firm PriceWaterhouseCoopers. PwC has agreed to put aside $1,200 per year for six years to be directed toward student loan payments for employees within the first employment tiers. That will not pay off many debts, as the median loan balance in 2014 was $14,400, but it certainly goes a long way toward reducing employee debt and increasing employee goodwill.
A student loan repayment program should be an extremely useful recruiting tool for companies that hire large numbers of new graduates, especially for white-collar positions that require significant degrees at entry-level. A survey by ionTuition showed that over half of college students, recent graduates, and prospective college students would prefer student loan repayment assistance to employer-based health benefits. Just under half would prefer student loan assistance to a 401(k) plan.
Student loan payback benefits are a way for firms in highly competitive fields to distinguish themselves from the pack. According to the most recent survey by the Society for Human Resource Management, only 3% of employers offer this type of benefit.
PwC is a perfect candidate for a student loan program, as it recruits almost 11,000 students annually with a high requirement for professional degrees, but PwC is not alone in seeing the benefit of helping their recent hires deal with student loan debt. DeMello says that Gradifi has around forty companies on a waiting list for their own loan assistance programs to be launched early in 2016. However, it would be a stretch to see this type of benefit catch on outside of professional niche markets. It is easy to see Silicon Valley firms putting this program to use, but it is hard to envision a Wal-Mart or a similar lower-margin operation offering such a perk.
Demello has higher expectations. He suggests that over the next five to ten years, somewhere between 50,000 and 100,000 companies will offer some variant of the student loan payback benefit. It gives companies a means of increasing effective take-home pay without having to raise salaries outright. Combine this with other financial planning and financial literacy programs and you have a workforce that is content, motivated, and focused on work instead of money.
A student loan repayment program by itself is not going to attract potential employees — it must be part of an overall support system with adequate salary and baseline benefits, and if the company culture does not match employee expectations, it may not matter how good the perks are.
Still, all signs point to student loan assistance being a unique, useful perk. If DeMello and Gradifi's platform succeed, perhaps it will not be unique in the future.
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