What It's Actually Worth When Companies Pay Employee Student Debt
Companies that pay back student debt for their employees are part of the hottest thing in benefits right now, but how much does the benefit actually save student debtors? About three years and $4,100 in payments for the typical undergrad with a bachelor's degree, a new study finds.
That figure varies depending on how much debt an employee has and the size of the employer contribution. But researchers from personal finance hub NerdWallet, which released a report Wednesday, landed on that number by looking at national averages and common benefits packages to create what they call a "typical employer contribution program."
College graduates with debt owe an average of $29,400 for undergraduate loans, according to the Department of Education. Most companies that offer the benefit tend to put up between $100 and $250 a month toward an employee's student debt, while capping the total contribution. PricewaterhouseCoopers, one of the highest-profile companies to pay off student debt, for example, will pay each qualifying employee up to $1,200 a year for up to six years.
For their savings estimate, NerdWallet researchers assumed a $167-a-month contribution, capping the total payment at $10,000. That benefit would save someone with $30,000 of debt three years in student loans, "and shaving three years off a repayment plan saves three years' worth of interest payments, totaling about $4,100 for the average borrower," the report said. That's also three years that employees can spend money on other things, like, for the very responsible, contributions to a 401(k) plan.
"I was pretty interested to understand if this was more kind of publicity for them, or if this was a real meaningful perk that would have a big impact on their employees' bottom line," said Victoria Simons, a data analyst at NerdWallet. "There is substantial savings to be had if you're an undergrad; these contributions can make a pretty big difference."
The researchers also looked at another budding student debt benefit, refinancing. Some companies will negotiate slightly lower interest rates for employees, taking some of the bite out of interest payments. Again, the researchers looked at typical debts, typical interest rates, and typical refinancing options, using figures from the Department of Education and Consumer Financial Protection Bureau. The savings for an undergraduate in that scenario comes out to only $931. But for advanced degree holders, who tend to graduate with more debt, refinancing can have huge savings. Law graduates come out of school with an average of $147,535 in student loans and will pay $57,531 in interest alone. In that scenario, because the principal is so high, the typical refinancing benefit can save almost $9,525, the researchers found.
Recent graduates already understand the importance of paying off debt, and paying it fast. A recent survey of 1,000 people with loans found that 80 percent would like to work for an employer with some sort of repayment benefit. Around half said they preferred loan payments to 401(k) contributions and health insurance premium coverage. Health insurance has historically been the most coveted benefit. "That kind of tells you the financial pressure these kids are under," said Bruce Elliott, the manager of compensation and benefits at the Society for Human Resource Management.
Last year only 3 percent of the 450 employers surveyed by SHRM offered student debt repayment as part of their benefits packages, but that number is expected to swell this year. "We're going to see employers doing more of this," Elliott said. Gradifi, which helps employers manage the benefit, has signed up more than 100 employers, and has a waiting list.
Employers, especially those who hire fresh graduates, see the benefit as a recruitment and retention tool. "When 70 percent of grads in 2014 had student loan debt, this is just very top of mind for most people entering the workforce," said NerdWallet's Simons. "For employers that are looking to recruit the demographic, this is a great gesture and great PR as well."