Com­pa­nies help work­ers pare stu­dent debt so they can start sav­ing

Em­ploy­ers can of­fer to match pay­ments on stu­dent loans “We re­ally like the ef­fect it has on our abil­ity to re­cruit”

Bloomberg Businessweek (Asia) - - CONTENTS - −Mar­garet Collins and Ben Stev­er­man

Young peo­ple have heard the ad­vice again and again: Be­gin sav­ing for re­tire­ment as soon as pos­si­ble. But be­fore they can start to build their nest eggs, many twen­tysome­things have to re­tire stu­dent loan debt. “It’s the big­gest weight on my life right now,” says Nolan Grace, a 24-year-old who grad­u­ated from Pur­due Univer­sity with what he calls “very sig­nif­i­cant” loans.

Luck­ily, Grace’s em­ployer, BP3 Global, is help­ing him with loan pay­ments. The Austin-based soft­ware-ser­vices com­pany uses a plat­form called Stu­dent Loan Ge­nius to let it match as much as $100 per month of Grace’s debt pay­ments. “We re­ally like the ef­fect it has on our abil­ity to re­cruit,” says Scott Fran­cis, BP3’s chief ex­ec­u­tive of­fi­cer. He says col­lege stu­dents seem to be more in­ter­ested in that ben­e­fit than in the com­pany’s health-care and re­tire­ment of­fer­ings.

CEO Tony Aguilar, 31, helped start Stu­dent Loan Ge­nius, also an Austin com­pany, in 2013, build­ing up its cus­tomer base to in­clude 45 com­pa­nies. Em­ploy­ees at com­pa­nies that have con­tracted with Stu­dent Loan Ge­nius have more than $61,000 in stu­dent loan debt on av­er­age, and their monthly pay­ments are usu­ally more than $500 a month.

Aguilar, who grad­u­ated from col­lege with more than $100,000 in stu­dent loans, says he knows as well as any­one how the bur­den is hold­ing back an en­tire gen­er­a­tion. U.S. ed­u­ca­tional debt rose to $1.2 tril­lion last year, six times more than in 2003. The av­er­age re­cent col­lege stu­dent has $31,000 in debt. A study re­leased in Fe­bru­ary by the Cen­ter for Re­tire­ment Re­search at Bos­ton Col­lege es­ti­mates that growth in stu­dent debt will even­tu­ally in­crease the share of Amer­i­cans who will have in­ad­e­quate in­come at re­tire­ment by 4.6 per­cent­age points, to 56.2 per­cent.

A Jan­uary re­port by Face­book, which an­a­lyzed pub­lic posts and polled thou­sands of users anony­mously, found that only 13 per­cent of peo­ple age 21–34 see be­ing able to re­tire as the def­i­ni­tion of fi­nan­cial suc­cess. Their No. 1 in­di­ca­tor of fi­nan­cial suc­cess is be­ing debt-free. How can peo­ple stay fo­cused on the far­away dream of re­tire­ment when they’re ob­sess­ing over meet­ing monthly debt pay­ments? Aguilar says the way is to link the two. His com­pany can sync a com­pany’s 401(k) pro­gram with col­lege loan bills. In March, Stu­dent Loan Ge­nius rolled out a fea­ture al­low­ing em­ploy­ees who make a monthly stu­dent loan pay­ment to get a match­ing em­ployer con­tri­bu­tion to their 401(k). “Not only are we help­ing the stu­dent loan prob­lem, we’re help­ing peo­ple save as well,” says Aguilar.

The money goes fur­ther since 401(k) con­tri­bu­tions aren’t taxed un­til the funds are with­drawn, whereas matches for the em­ployee’s monthly loan pay­ment are taxed up­front. Ul­ti­mately, it’s up to em­ploy­ers to de­cide how to struc­ture the ben­e­fit—to en­cour­age re­tire­ment plan­ning, or stu­dent loan pay­ments, or both. Aguilar is also sup­port­ing a bill, spon­sored by both Repub­li­cans and Democrats in Congress, that would al­low em­ployer matches to stu­dent loan pay­ments to be tax-ex­empt.

Com­pa­nies in Stu­dent Loan Ge­nius’s 401(k) ben­e­fit pro­gram will need to nav­i­gate the knotty rules the fed­eral govern­ment im­poses on re­tire­ment plans, says Mar­cia Wag­ner, man­ag­ing di­rec­tor of the Wag­ner Law Group in Bos­ton. So-called nondis­crim­i­na­tion tests pre­vent highly paid em­ploy­ees from get­ting too much ex­tra ben­e­fit out of 401(k) plans com­pared with lower-paid work­ers. Stu­dent Loan Ge­nius says such rules aren’t a prob­lem, be­cause those with stu­dent loans tend to be closer to the bot­tom of the pay scale.

Ali­cia Mun­nell, a Bos­ton Col­lege pro­fes­sor who’s the di­rec­tor of the Cen­ter for Re­tire­ment Re­search, says link­ing stu­dent loan pay­ments and 401(k) con­tri­bu­tions is a “nice idea” whose ap­peal may be lim­ited. “If ev­ery com­pany of­fered this type of ben­e­fit, it would help debt-laden col­lege grad­u­ates get an ear­lier start on re­tire­ment sav­ing,” she says. “But ev­ery com­pany won’t.” The best way to help young peo­ple save for re­tire­ment would be to im­prove how 401(k) plans are de­signed, she says, by adding fea­tures (which work­ers can opt out of ) that au­to­mat­i­cally en­roll them and raise the con­tri­bu­tion rate over time. The bot­tom line Austin startup Stu­dent Loan Ge­nius has a ser­vice that lets com­pa­nies sync re­tire­ment sav­ings and stu­dent debt pay­ments.

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