To attract and retain millennials, companies across the country (including a handful of credit unions) are expanding their employee benefit programs to include student loan refinance options and repayment assistance. With more than 40 million Americans having some level of student loan debt, this should come as no surprise.
And based on a recent survey from ionTuition, it’s probably a good idea. Nearly 80%of the individuals surveyed with student loan debt, which could equate to more than 30 million Americans, said they would like to work for a company that offers repayment assistance with a matching opportunity. In fact, 49% of respondents said they would prefer student loan payment contributions over a 401(k) at this point in time.
A Growing Trend In Refi And Repay
Although student loan refinance and repayment assistance plans are relatively new to the marketplace, both are booming. In 2012, there was just one lender offering student loan refinancing for both federal and private student loans — but since then, more than a dozen lenders, ranging from fintech startups to big banks to credit unions, have entered the market. With more than $211 billion in outstanding student loan debt estimated to be addressable by lenders (based on a March 2015 Goldman Sachs report), and only $3 billion to $4 billion having been refinanced thus far, the refinance market is likely to expand even further.
A number of large organizations including Fidelity, Aetna, and PricewaterhouseCoopers already have announced repayment assistance plans in recent months. Leveraging third parties to administer the program, these companies offer significant financial benefits. In PwC’s case, employees will receive an additional $1,200 per year (paid out monthly) to go towards their student loans. According to PwC, the company believes “that over time, this benefit may help reduce student loan principal and interest obligations by as much as $10,000 per employee, and shorten loan payoff periods by up to three years."
Companies and employees could also soon be getting a boost from Uncle Sam. Multiple bills have been introduced that would create tax benefits for employers for either making qualified student loan payments on employees' behalf or reimbursing the employee for payments made, similar to the tax credits that exist now for employer tuition assistance. Additionally, the borrower would not have to pay taxes on the funds provided by the employer toward the student loan.
An Opportunity For Credit Unions
In addition to repayment assistance, companies are also searching for attractive refinance options for their employees. Not surprisingly, some lenders are working hand-in-hand with repayment assistance firms to serve as a referral recipient for employees looking to refinance. In other cases, such as Sofi, lenders have even created their own programs combining repay assistance and refinance.
Taking a page from the historical playbook of credit unions, SoFi has funded more than $1 billion in student loan refinancing to borrowers through 400 “corporate partners”, ranging from Microsoft to membership organizations. According to a senior representative from the burgeoning online lender, this channel has been extremely cost-effective and opens the door to a coveted demographic in need of a full range of financial services.
Credit unions are turning to their own Select Employee Groups to find similar opportunities. BCU ($2.6B; Vernon Hills, IL) shared its experience during Student Choice’s 2016 Empower U conference. The credit union first began offering a student loan refinance product in 2013 before expanding the program in late 2016.
“Student loan refinance is a very relevant product for millennials and a key benefit that we can promote to our SEGs,” said David Brydun, BCU’s vice president of consumer lending. “With our employer-focused business model and more companies focusing on ways to help employees manage and reduce their student loan debt, we think this is a great fit and another way for us to provide value to our key business partners.”
BCU’s corporate relations and lending departments worked together to position the refi product as a desirable employee benefit and conducted meetings and informational webinars with key HR contacts to create awareness. The credit union also incorporated the loan into various financial well-being initiatives delivered to SEGs. According to Brydun, this effort and timing was critical, as the credit union had to fend off competition from fintech startups who were attempting to forge loan referral relationships with the credit union’s SEGs.
“We’ve now worked with three different SEGs to roll out student loan refinance assistance to their employees and are excited about the opportunities ahead, not just with a lending product but for the chance to develop deeper long-term member relationships,” said Brydun.
With the strong historical ties and deep relationships that many credit unions have with SEGs, student loan refinance and repayment assistance may be a significant opportunity worth evaluating in 2017 and beyond.
This article originally ran on CreditUnions.com on Jan. 30, 2017.