Student loan repayment benefits gain traction
Iowa Student Loan subsidiary launches employer benefit program
JOE GARDYASZ Sep 18, 2019 | 9:08 pm
5 min read time1,131 wordsBusiness Record Insider, HR & Education
Iowa organizations that are looking for an edge in recruiting and retaining employees may want to consider a relatively new benefit option — student loan repayment programs.
An estimated 4% of U.S. employers currently offer college loan debt repayment as a benefit, but that is expected to jump to 32% within the next two years, according to a 2018 trends survey on voluntary benefits by global advisory firm Willis Towers Watson.
Currently, the benefit is treated as taxable income for employees. However, Congress is considering legislation that would make up to $5,250 in annual student loan repayments by an employer tax-free for workers, a move that experts say would make the benefit far more attractive.
West Des Moines-based Iowa Student Loan recently launched a student loan repayment benefit program through its for-profit subsidiary, Aspire Resources Inc.
Aspire Resources’ Employer Contribution Program is one service in a suite of College Finance Benefits products being offered by Aspire to employers throughout the United States. The benefit package also enables employers to offer contributions to college savings 529 plans or toward tuition reimbursement programs.
“From our perspective, we’re a different type of student loan company in that as a nonprofit, we want to see people borrow as little as possible,” said Steve McCullough, president and CEO of Iowa Student Loan. “And we also want to help them get that money repaid, whether that’s by giving them good advice or by offering lower interest rates — which we do as a nonprofit — or, in this case, by encouraging employers to help them pay their student loans.”
More than 44 million Americans, or roughly one-fourth of U.S. adults, collectively owe nearly $1.6 trillion in student debt, according to data tracked by the Federal Reserve System. When they graduate, the average U.S. student loan borrower has $37,172 in student loans, which is $20,000 higher than 13 years ago.
Aspire Resources estimates that a $100 monthly payment through its program, which is made directly to principal in addition to the regular student loan payment made by the employee, could save the employee more than $12,000 over the life of the loan. The benefit can also shave nearly three years off the repayment time on the average student loan balance, which in Iowa is approximately $30,000.
Nationally, several startup companies have popped up to offer the benefit, among them Gradifi, Peanut Butter and Goodly.
A national survey conducted last year by Aspire Resources found that employees would highly value a student loan repayment program as a benefit.
According to the survey results, more than one-third of respondents who were making student loan payments said they would exchange vacation days, paid holidays or a 401(k) match for an employer-provided student loan repayment contribution. The survey had more than 1,000 respondents from companies with 1,000 or more employees.
The respondents were also asked the minimum monthly payment an employer would need to make to get them to commit to staying with their employer for at least five years. Nearly one-quarter said $25 to $50 a month would be sufficient, while about half would commit to staying for payments of $100 or less per month.
Aspire and Iowa Student Loan began actively marketing the loan repayment benefit about six months ago.
“We’ve had some pretty good luck getting Iowa [companies] to sign up,” McCullough said. “We’ve actually got some other employers from throughout the country that have signed up as well.” He declined to provide specifics on numbers of companies that have already enrolled, but said that interest from potential clients is growing “exponentially.”
“We are currently in discussions with more than 230 companies, including one with over 300,000 employees,” he said. Another Fortune 500 that is considering the benefit has 47,000 employees, McCullough said, and two other larger prospects have more than 20,000 employees.
Iowa Student Loan was one of the first beta users of the student loan repayment benefit. It first offered the repayment benefit to its 200 employees in July 2018. Since then, 88 employees have enrolled for either student loan or 529 college savings plan payments.
The Iowa Bankers Association was also an early adopter; it has been offering the Aspire benefit to its member banks for about the past year.
“It’s not just the millennial workforce” with student loan debt, said Chad Ellsworth, president of Iowa Bankers Insurance and Services, which administers benefits programs for the association. “It’s people who have gone back to school to update their skills as well.”
Each bank that chooses to offer the benefit can decide how much repayment it wants to offer, which provides the bank the flexibility to provide what it sees as meaningful for its employees, Ellsworth said.
“I know the activity has been picking up since the first of the year, and we’ve started some marketing to help with awareness of it,” he said, but he declined to provide specific numbers. He anticipates the association will continue offering it as an ongoing benefit.
The dollar level of benefits offered by some of the banks to their employees has been substantial, Ellsworth said. “Anecdotally, I’ve heard between $500 to $1,000 in principal paid down per year [per employee], so those can be some pretty meaningful dollars,” he said.
Among the larger Central Iowa employers offering student loan repayment is Fareway Stores, which launched the benefit early this year. Eligible full-time workers can have up to $5,000 of their loan balances paid down by the company, with payments of $100 per month toward their principal balance.
“It’s been exceptionally well-received by our employees,” said Chad Carter, Fareway’s vice president of benefits, who said about 150 of its full-time employees have enrolled so far.
The Boone-based company chose Gradifi as its third-party provider for the benefit through a request for proposal process. “They’ve been a good business partner and have shared their expertise in helping us get off the ground and running the right way,” Carter said.
Although Fareway considered attaching a future employment commitment to the benefit, the company decided not to do that. “You have to be a full-time employee, but you don’t have to stay a certain amount of time,” Carter said. “Once they get it, it’s theirs and there are no strings attached.”
Employees must be current on their student loan payments to qualify for the program, and at any time there are probably 20 to 40 people in the pipeline who are in a pending status for the program who are catching up on their payments, Carter said. “We’re not trying to replace the employee’s payment; we’re just trying to accelerate their repayment,” he said.
Carter said he’s hopeful that federal legislation passes to make the benefit tax-free. “That would really level the playing field with other types of benefits like tuition assistance.”