One Down... Two to Go!

Well, my oldest graduates from college this weekend! One down.....two to go! He is one of the lucky ones, as far as student debt goes. Since he worked as a Resident Assistant for three years, and had some scholarship money granted, his student loan is minimal and he already plans to pay it off shortly. Unfortunately, many other individuals will be graduating this year and entering the workforce with large amounts of student debt. Knowing this, many organizations are offering various ways to help lighten the financial burden, giving these companies a competitive advantage in attracting and retaining employees.

Student debt has reached more than $1.3 trillion in the U.S., and dealing with those loans has become a serious problem for employees who have to use their income to pay off their education instead of saving the money in a retirement account.

According to PwC's 2016 Employee Financial Wellness Survey, more than a quarter of those surveyed are not saving for retirement at all, citing "too many other expenses" as the primary reason. Student loans are diverting money that could otherwise go to 401(k) accounts. 42% of millennials say they carry student debt, and eight in 10 of them say those loan obligations are impacting their financial goals. Those with student debt are more likely to have less than $50,000 in savings, and about 50% more likely to borrow from retirement assets compared to workers without student debt.

In a study, The Center for Retirement Research at Boston College estimated that recent growth in student debt could increase the number of Americans facing inadequate retirement income by 4.6 percentage points. Now, more companies are adding student loan repayment plans to their total rewards package. Research increasingly shows a student loan repayment benefit to be a powerful recruitment and retention tool: 76% of respondents to American Student Assistance's "Life Delayed" survey agreed that, all other things being equal, their choice to take a job would be considerably affected or decided based on an employer's willingness to offer a student loan repayment program.

There is no standard set of rules, but generally an employer agrees to pay or reimburse the employee for a specific amount toward their student loan debt in a given year. The amount a company will pay, and for how long, as well as eligibility requirements for the benefit, vary, although typically you may need to be employed for a set amount of time and make regular payments on your student loans. Typically, the funds are paid directly to the worker's loan servicing company. Employees can take advantage of the employer contributions and still make payments of their own.

Some offer loan repayment funds instead of signing bonuses, Some employers even allow employees to tap this benefit for student loans they've taken out for their children. Additionally, some plans will only cover federal student loans. Perhaps the biggest drawback, however, is that the employer contributions are considered taxable income for the purposes of income and payroll taxes, but there exists legislation pending in Congress to potentially change that.

Another twist on helping students with student loans is an income-sharing model to fund educational costs. The economist Milton Friedman is generally credited with originating the concept. Pledging to pay a percentage of their future incomes in return for funds today, at Purdue University, some undergraduates will have a new option to help finance their degrees. Starting this fall, juniors and seniors will have access to the school's Back a Boiler program, an alternative financing arrangement known as an income-share agreement, whereby students receive funds to cover current education expenses, and, in return, they agree to pay a percentage of their future income over an agreed-upon period of time. When that repayment term ends, so does the student's obligation, even if their total payments are less than the amount they received. The income-sharing program will offer terms based on students' majors and the projected salaries in those fields. A comparison tool on Purdue's website lets students estimate how their own offers might look. This model for funding education has had success in Australia where university students have long repaid their educational costs in a similar fashion.

Only a few hundred students in the United States have received money through income-sharing arrangements, and there is no long-term data yet on the results. No major regulators have drafted rules specifically to address these income-sharing agreements. Financing firms are left largely on their own to tailor their products, fees and disclosures to consumer-protection laws that are designed for traditional loans. Two finance firms, Upstart and Pave, began offering such arrangements, but both ended their programs shortly thereafter and switched to making more conventional loans instead.

Austin-based software-services company BP3 Global Inc., one of several companies offering similar benefits, uses a platform called Student Loan Genius to let it match the student loan repayments of its employees. In addition, Student Loan Genius offers a platform that helps employees find the best way to consolidate their many student loans into one repayment plan. School loans have to be taken out every semester which means the average student has many loans and not all of them necessarily at the same banking institution.

CEO Tony Aguilar helped start Student Loan Genius in 2013, and has been pushing for Congress to pass a bill that would allow employer matches to student loan payments to be pretax. In the meantime; however. his company came up with a way to align the existing 401(k) program structure with college loan bills, so individuals don't necessarily have to make the choice between paying down student debt and saving for retirement. His new benefit platform will let companies sync retirement savings and student debt payments so employees who make a monthly student loan payment can automatically receive an employer matching contribution to their 401(k).

The best time to start saving for retirement is as soon as possible. Upon entering the workforce is usually that opportune moment, but many can't because of large amounts of student loan debt.

A report by Facebook Inc., which analyzed public posts and polled thousands of users anonymously, found that the # 1 indicator of financial success to them was being debt-free. Some innovative companies have certainly stepped up to the plate to help with this.