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College Crunched

Few, if any, college students escape university life these days without incurring a daunting amount of student loans. In response to this, employers are beginning to make use of new programs to help their newest hires pay down that debt and start focusing on saving for their retirements.

Thursday, October 8, 2015
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When Brendon McQueen graduated from Columbia University in 2009, he was the first in his family to obtain a college diploma, let alone one from an Ivy League university. He was also saddled with $120,000 in student loans and facing the worst job market for college grads in decades.

Today McQueen is CEO of Tuition.io (the name is a play on "I owe"), a Santa Monica, Calif.-based firm he founded in 2013 with the mission of helping grads who find themselves in similar circumstances. The company, which offers an online platform for users to manage their student loans, recently launched a new service that lets companies help their employees pay down college debt. 

McQueen's firm isn't the only one offering such a service -- Gradifi, a Boston-based firm founded last year, recently announced that consulting giant PwC will use its service to help its young employees pay down their student loans. 

"When I saw that student debt in this country had reached $1.3 trillion, I was blown away," says Gradifi CEO and founder Tim DeMello, an entrepreneur who serves on Babson College's board of trustees.

More than 70 percent of this year's college grads will owe debt averaging about $35,000, according to an analysis by consulting firm Edvisors. Although the latest employee benefits survey from the Society for Human Resource Management shows that only 3 percent of employers currently offer help to pay down student debt, McQueen and DeMello expect that number to grow quickly as companies compete to lure millennial and Generation Z candidates.

"We've had more than 50 companies contact us in the last 30 days who are interested in offering this to their employees," says DeMello.

Both say that traditional benefits don't resonate with young employees struggling to pay off big loans.

"HR is sitting them down to talk about 401(k)s, 529 plans and HSAs, but the millennials are thinking, ‘I don't have kids, I'm not even thinking about retirement yet -- these programs aren't for me,' " says McQueen, whose firm's clients include online-food ordering company ChowHound and Chegg, an online textbook-rental company with 500 employees.

Under PwC's arrangement with Gradifi, starting next year junior-level employees will be offered up to $1,200 annually to pay down their student debt via Gradifi's Student Loan Paydown Plan for a maximum of six years. Factoring in reduced interest payments, the value of the benefit is more than $10,000, says DeMello.

Clients have a number of options for offering the benefit, he says. Some, such as PwC, offer a fixed monthly amount while others can match employees' loan payments up to a certain amount.

Although DeMello acknowledges that generational conflict -- as in, older generations resentful of a benefit that seems designed for younger employees -- can be a concern, he says there's no such thing as "benefits parity" in the first place.

"There are health plans for families and ones for single employees, there are spousal benefits, adoption benefits and maternity leave benefits -- some employees use them and others don't," he says. "We've talked this over with clients and they agree on this."

Young employees, however, may be less likely to participate in retirement benefits until they feel their student-loan situations are under control, says DeMello.

"You may see companies offering young employees an option: Here's a loan-assistance program you can opt into and, when you're done with that, you can switch over to the defined-contribution plan," he says. "The best return-on-investment for a 22-year-old is to get rid of their student loan first -- that will help their FICO score."

DeMello says he expects student loan-relief benefits to get an added boost once Congress passes a pending bill to make such payments tax exempt. For now, such benefits are viewed by the government as income and are taxed accordingly.

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Although she hesitates to call this benefit a trend, Aon Hewitt's Carol Sladek says it's reflective of employers trying hard to understand the needs of the incoming talent pool.

"Young employees are coming in with a large debt load," says Sladek, who leads Aon Hewitt's work/life practice. "The other trend is that employers are focusing on the overall financial well-being of employees, with the understanding that the 20-to-30-year olds aren't as focused on retirement as they are on other goals."

Lenny Sanicola, senior practice leader at Scottsdale, Ariz.based WorldatWork, says that although the benefit is "definitely innovative," he doesn't see it going mainstream. "You'll see financial-services companies and other industry sectors that recruit lots of millennials each year -- like PwC -- offering this," he says. "But I think we'll continue to see more companies offering financial-wellness programs rather than this type of benefit."

However, both McQueen and DeMello say they've seen companies big and small from a wide range of industries express interest in their services. Law firms and healthcare companies are among the industries represented, says DeMello.

Although experts recommend that employees enroll in retirement programs as soon as possible, Sladek says doing so can be a difficult balancing act for recent grads.

"It makes sense to enroll, but for many people, it's not possible to take their starting salary and apportion it among different pieces," she says. "It's tough when you're 25 and have $30,000 of student debt."

Employers are trying to widen the scope of well-being with respect to their employees' financial needs, says Sladek, understanding that those needs may differ among the generations.

"Back in the day, when everyone looked like Ward Cleaver, it was easy to offer just one set of benefits," she says.

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