Company Student Loan Contributions Could Shave 3 Years off Borrower Debt

The new company contribution plans for student loans that are winning media attention lately are more than just great PR -- they actually knock down employee debt. NerdWallet found in a new study that a typical plan could save borrowers up to three years of payments from interest savings.

For an undergraduate student loan borrower, who has an average debt load of $29,400 in the U.S., we found a typical company contribution plan could mean a total of $4,100 in interest savings. That's in addition to the principal paid off from these plans, typically a maximum of $10,000. This amount of interest savings would wipe out three years of regular minimum payments.

A new way to help repay

The study comes on the heels of newly announced student loan contribution plans from companies such as PricewaterhouseCoopers, Natixis Global Asset Management and Fidelity Investments. Only 3% of companies provide student loan repayment programs as part of employment benefit packages, according to those surveyed in 2015 by the Society for Human Resource Management.

A far more common cost-cutting option among indebted grads is student loan refinancing. NerdWallet also compared the savings of an employer contribution plan to refinancing, in which a financial institution or private lending company rolls all your current loans into a single loan with one monthly payment, and ideally with a lower interest rate. The new loan term generally ranges from five to 20 years.

NerdWallet found undergraduate degree holders who would see the most savings are those who both receive a company perk and opt to refinance, for a total interest savings of $4,264. By refinancing alone, the average undergraduate degree holder would save $931. That same borrower who benefits solely from an employer contribution plan would save $4,121 in interest payments.

NerdWallet's calculations assumed refinancing as the best option for the average borrower. However, even if you qualify for refinancing, it may not be the right choice for your particular situation. Explore your student loan repayment options before deciding.

Who stands to save the most?

The study looked at four scenarios for three different degree-holders -- B.A., MBA and law -- who graduated in 2012. Each graduate carries an average debt for the degree in question. It's assumed that 100% of the employer contribution goes toward paying down private loans before using the contribution for federal loans, since private loans carry higher annual percentage rates than federal loans. These are the four scenarios:

Baseline scenario: A borrower with an average loan keeps a standard 10-year term and doesn't receive an employer contribution plan or choose to refinance.
Employer contribution perk-only scenario: A borrower receives $167 per month over a five-year period, for a lifetime limit of $10,000, from an employer.
Refinancing-only scenario: A borrower opts to refinance after first making on-time payments for two years.
Combined employer contribution perk and refinancing scenario: A borrower refinances student loans after two years of on-time payments and also benefits from an employer contribution plan of $167 per month over a five-year period, with a lifetime limit of $10,000.

Degree Average debt Interest saved by employer contribution Interest saved by refinancing Interest saved by refinancing + employer contribution
B.A. $29,400 $4,121 $931 $4,264
MBA $52,805 $5,039 $3,754 $7,181
LLB or J.D. $147,535 $5,329 $9,525 $13,017

Read the full study, including methodology, here.

Anna Helhoski is a staff writer at NerdWallet, a personal finance website. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.