Back in 2014, Joe Lakier, then 25, wasn’t really thinking about his student loans. After graduating from law school three years earlier, he was stuck making monthly payments on $100,000 worth of loans, and wasn’t even beginning to chip away at the principal. But Lakier qualified for a federal student loan forgiveness program. “The plan was, I would wait 20 years and if I made those minimum payments, the rest would be forgiven,” he remembers.
His employer at the time, Ernst & Young, had recently begun offering a discount on student loan refinancing as part of its employee benefits package. Lakier says he signed up and was surprised to find that he was able to halve his interest rate. “That’s when I started to take control of my financial situation,” he says. He opened up Excel and started modeling out different financial scenarios. What would his finances look like five and 10 years from now if his interest rate and payment had just stayed the same? What would change if he continued making the same monthly payment but at the new interest rate? What if he started paying an extra $1,000 every year toward his student loans?
“It was like whoa, this is incredible,” he says. “I should be doing this in other areas of my life, like savings.”
In the U.S., 42 million people have an aggregate $1.4 trillion in outstanding federal student debt, according to Federal Student Aid. Of that, some 3.65 million people are deferring their federal student loans and another 2.6 million have such loans in forbearance. Over 4 million are defaulting on their loans. These figures don’t include private loans, which account for another $67 billion in student debt.
As salaries stagnate and unemployment continues to drift downward, more companies are considering new ways they can draw and keep talent. Three years ago, student loan repayment was offered up as a shiny new benefit–an alternative to the 401K. But contrary to the press cycle, it seems companies have not been signing up in droves to help out employees with their debt burden.
The fortunate 4%
Only an estimated 4% of companies participate in student loan repayment, according to a 2018 Society for Human Resource Management (SHRM) survey, barely more than when the organization first started tracking student loan repayment benefits in 2015. That may be in part because it’s expensive to put money toward employees’ student loans and there’s no tax benefit. Any money an employer puts toward employee student loans is taxed before it’s applied, unlike dollars that are put into approved retirement funds. There is, however, an effort to change that. In February, U.S. Representative Rodney Davis [R-IL] introduced a bill that would make payments toward student loans tax exempt. It has yet to come to the floor.
In the meantime, some companies are taking matters into their own hands. Over the summer, following approval from the IRS, Abbott Laboratories launched a program called Freedom 2 Save. Employees who are contributing between 2% and 5% of their paycheck toward student loans get that amount matched and applied to their 401K.
Other companies are seeking out cheaper ways to benefit employees. Over 800 companies including Orrick, Meredith, Credit Suisse, and Ernst & Young have signed on with SoFi to offer their employees student loan consolidation and refinancing. In total, the company says, it’s refinanced $2 billion in student debt through the program. Of its partners, 5% have chosen to contribute money toward employee student debt–an average of $1,200 per employee per year. SoFi says its partners have put $1.8 million toward student loan debt.
SoFi’s program lets companies offer student loan refinancing to their employees for free, and constitutes 10% of SoFi’s student loan volume. SoFi also promises lots of free perks.
“Last year we had 18,000 SoFi members come to events,” says head of marketing Joanne Bradford. “Everything from Get That Raise to networking to yoga.” SoFi notably pours lots of money into marketing and acquiring new customers through events and other activations.
Some of these free services started out of necessity. Early on, the company hired a career coach to offer free one-on-one career counseling to members. “When people lost their jobs, we used to have one career coach to help them because we wanted them to get a job as fast as possible so they wouldn’t default on their loans,” says Bradford. Now she says, they serve as a way for building brand loyalty. Bradford says customers who come to events are three times as likely to sign on with another SoFi product. To expand its offering, this year SoFi partnered with consulting services company Korn Ferry to give all its members access to free career coaching.
In the last four years, 20% more companies began offering financial counseling of some sort to their workers, according to SHRM. Bradford says the companies SoFi works with are also asking them for more financial counseling as well.
Ultimately, most companies still aren’t ready to pay off your student loans–but if you’re lucky, they might offer you some advice on how to do it.