Companies are starting to realize the benefits of helping staff pay off debt.
Chris Harris, the chief technology officer at Portland IT consulting startup BridgeTech, was looking into rolling out a 401(k) for his staff when he realized a new trending benefit that helps employees pay off student loans would have more of a financial impact.
“I thought it may develop more loyalty and commitment if we helped solve a problem that is right in their faces,” says Harris.
Student loan debt surpasses credit card debt in the U.S., and it is growing. In 2018 the total amount of student loan debt exceeded $1.6 trillion, according to Federal Reserve data. That is 50% more than Americans owe on their credit cards.
This financial burden can be crippling for employees. The average student loan debt totals $37,172. Graduates spend on average $393 a month paying off loans. Almost 20% are behind on payments, according to a Federal Reserve survey.
Harris chose to match $1,200 a year towards student loan repayment. Even a match of as little as $100 a month can bring down the time it takes graduates to pay off an average debt of $40,000 by several years.
Harris was surprised that staffers who showed interest in the benefit were not only millennials. Employees who are at the age when they could have college-age children came forward.
“They are probably saving for their own kids’ college education while paying off their debt in parallel. It is suprising that at that age they are in that trap,” says Harris, who cofounded BridgeTech four years ago.
Fifty-five percent of millennials surveyed by benefits provider Unum in 2018 said student debt repayment is a must-have-benefit. And 76% of respondents to a 2015 American Student Assistance survey said an employer offering a student loan repayment benefit would be a deciding or contributing reason for accepting a job offer.
Technology startups are taking advantage of the trend. Goodly, an employee benefit software company that helps businesses make student loan payments, launched in San Francisco in April 2018. BridgeTech is its first Oregon client.
Co-founder and CEO Gregory Poulin said he had the idea for Goodly from dealing with his own student loan debt. After his father passed away suddenly, he had to borrow $80,000 to pay for his education at Dartmouth College.
His loan repayments came to $900 a month and he struggled to get by while living in San Francisco, one of the most expensive place to live in the U.S.
The Goodly software plugs directly into companies’ payroll systems. Clients pay a small fee for every employee who participates in the benefit.
The Goodly team. From left to right: Billy McGrath, Hemant Verma, Dylan Blatt, Gregory Poulin, Niko Lalos.
Harris says he went with Goodly because the company does not charge set-up fees or for an annual membership.
One downside that could hamper widespread adoption of the student loan repayment benefit is the lack of tax benefits. Companies that offer 401(k)s or health insurance do not pay payroll taxes. This is not yet the case for helping to pay off student loan debt.
Still, Harris feels good about offering the benefit. It may not look that good on paper, but it is a “good peoples’ decision,” he says.
“If somebody is loyal and stoked about it, that means more to us.”
To subscribe to Oregon Business, click here.