As companies strive to find new and better ways to attract and retain skilled workers, many have explored student loan debt repayment options as a way to differentiate themselves from the competition.
Student Loan Genius in Austin, Texas, has taken a different approach to that option. Instead of having employers give a set amount of money to their employees to help pay off their debt, Student Loan Genius rewards employees for making monthly payments on their student loan debt by contributing an equal amount to their retirement accounts.
Many younger workers come out of college with so much debt they can’t even think about setting money aside for their retirement. Tony Aguilar, co-founder and CEO of Student Loan Genius, unveiled the company’s 401(k) contribution feature this week as a way to help employees who can’t afford to set money aside for retirement, do just that.
“Our 401(k) contribution feature works with existing benefits frameworks, so we don’t have to wait for Congress to make a change to the tax code to enable companies to use pre-tax dollars for a student loan benefit,” he says. "We want to be the catalyst for why Congress passes legislation that helps eliminate today’s growing $1.3 trillion student loan problem. We’ll do it by showing the impact pre-tax contributions can have on families, businesses and, ultimately, the entire economy.”
The 401(k) contribution feature converts student loan payments into a wealth-building activity, which doubles the financial impact of student loan payments, providing a way for employees to pay off their student loans faster while simultaneously growing their retirement nest egg, the company said.
Companies pay Student Loan Genius to come in and offer this program, which can cost as little as $1 per month per employee. Most companies also offer the benefit to an employee’s family members, including spouses.
Many parents co-sign on their children’s student loans and this benefit can help them put money away for their retirement as they continue to help pay off these student loans. It doesn’t have to be their own student loan debt, says Aguilar.
Aguilar first became interested in student loan debt when he was attempting to find out what the options were for him to pay off his own $100,000 in student loan debt.
“It was an eye opener,” he says. “It shouldn’t be this hard.”
Many millennials find themselves in a trap where they are so overcome with student loan debt they can’t save for a house, get married, pay off other debts or invest in their 401(k) plan. Student Loan Genius helps employers determine what their employees’ student loan debt burden actually is by doing a quick survey.
“It allows employers to see how many people have student loans and what is the average monthly payment and balance,” Aguilar says. The survey breaks the information down by demographics.
What the company found is that it isn’t just people in their 30s who are overloaded with student loan debt. Two-thirds of student loan holders are over age 30. Many baby boomers have student loan debt because they have taken out loans to help pay for their children and grandchildren’s college educations.
“Everyone knows it is a problem, but nobody is acting on it,” says Aguilar.
One of the options Student Loan Genius came up with was a platform that helps employees find the best way to consolidate their many student loans into one repayment plan. Many people have no idea how to tackle their debt. Unlike mortgage or car loans, school loans have to be taken out every semester. That means that the average student has 12 loans and not all of them are necessarily at the same banking institution, Aguilar says.
“That’s the reason why over 40% of student loan holders are in default or delinquent right now,” he says.
Once an employee chooses a plan, it is integrated to the company’s payroll system. If a person decides to make additional loan payments, Student Loan Genius makes sure the money is used to pay down the principal on the highest interest rate debt first.
As part of this program, employers can decide if they want to make a direct monthly or annual match to the employee to help pay down student loan debt. It is post-tax for the employee and tax deductible for the employer, Aguilar says.
While Aguilar has presented information about student loan debt to the Obama administration, he admits that no bills that have been introduced in Congress have a chance to pass until after the next presidential election.
“We don’t want to wait for that. The government can’t fix this problem by themselves. They need the private sector to get involved,” he says.
Student Loan Genius’ 401(k) contribution plan can be used as a recruiting and retention tool.
“If you can help employees with the biggest financial burden they have, it alleviates that pressure and stress. This is something exciting,” he believes.
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