Student loans are becoming one of the largest debts in the country, and now affect about four in 10 adults under the age of 30, according to the Pew Research Center.
In response, and as a recruiting tool, one Iowa City-based company so far has begun offering a program to help employees pay down their student loans.
It’s a relatively new concept, but one that MidWestOne Financial Group President and CEO Charles Funk supports.
“My assumption that this is like what 401(k) was in 1980,” Funk said. “ ... So why wouldn’t we be on the front end of this?”
Iowa City-based MidWestOne Bank — with offices in Iowa, Minnesota and Wisconsin as well as in Colorado and Florida — began offering the benefit in the first quarter of this year.
In its first year, Funk said the company set aside approximately $125,000 in its budget for the program.
An employee is eligible for the program at MidWestOne Bank after he or she has been employed there for 30 days. Depending on how long they have been with the company, employees can receive between $50 to $100 each month, with a $10,000 cap.
Funk said the company currently has about 100 employees using the program.
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The program is offered through Tuition.io, a California-based student-loan management company that launched in 2013. Through its platform, Tuition.io, helps companies provide employer-paid student loan contributions to its employees.
“This is still very early, but the companies that have been doing have problems they’ve been trying to solve with their workforce,” said Scott Thompson, CEO of Tuition.io.
Tuition.io brings all data pertaining to an employee’s loans — such as total balances and interest rates — onto the platform, enabling the contribution to be made through the system.
If an employee has more than one loan, Tuition.io can recommend to which loan to make the contribution.
Funk said his company conducted a survey before offering the student loan contribution benefit, and received nearly a 70 percent response rate. Those responses “definitely showed the need,” he recalled.
“We had some percentage (of responders) had up to $10,000 in debt, some percentage over $40,000,” Funk said.
According to Forbes, student debt is the second-largest consumer debt category in the United States.
This year, there are more than 44 million borrowers with a total of $1.3 trillion in debt. The average student from the 2016 graduating class has more than $37,000 in loans, according to Forbes.
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“It’s almost unimaginable that this debt is bigger than credit card debt, which we’ve been talking about for forever,” Thompson said. “It’s significantly larger, and it’s growing”
Thompson said some recent graduates are cash-flow broke — their paychecks are spoken for to pay off student loans on top of other living expenses.
Because of this, Thompson said these young employees are continually looking for a new job with higher salaries.
“It results in a lot of turnover in these age groups that companies have not seen before,” Thompson said.
“If talent really matters and I want to attract the best and the brightest, I have to give them the type of benefit program that really says, ‘I care about you, I really value you,’” Thompson said.
Tuition.io has about 100 companies on the platform, including Fidelity Investments and Staples.
To Funk, as long as conversations about student debt continues in the country, he said he expects this type of employee benefit to become more common among employers.
“I think we long as we have this situation, we will see more of this,” Funk said.
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