Traditional financial institutions – large and small – have made it clear they are looking to attract and retain young talent as many of their older employees approach retirement.
While there is still a lot of work to do on this front, some financial institutions appear to have found one work-perk that is a sure winner among Millennials: Helping them pay off their student loan debt.
In addition to large financial institutions like PwC and AEW Capital Management, several community banks and credit unions in the commonwealth have begun to offer student loan assistance benefits to their employees to help chip away at the $1.4 trillion Americans owe in student debt.
“We recognize that as older employees retire, we need to bring new employees into the pipeline,” said Dorothy Savarese, current chairwoman of the American Bankers Association board of directors and president of Cape Cod Five Cents Savings Bank, which recently began offering the benefit. “We are working as an industry to help attract young people and show them how … banking can be a fulfilling and fruitful career.”
The idea of student loan assistance as an employee benefit is still relatively new, with only 4 percent of members in the Society of Human Resource Management saying they are offering it this year.
But it is quickly catching on, thanks in part to the Boston-based fintech company Gradifi, a new platform employers can use to make contributions to their employees’ student loans.
Success So Far
The service, which is being used by 130 companies total, 15 of which are in Massachusetts and 10 of which are banks, was specifically endorsed by the ABA in February.
“Student loan burden affects a significant portion of our nation’s workforce – particularly Millennials,” Rob Nichols, ABA’s president and CEO, said in a statement at the time. “Since so few employers currently offer such benefits, we see this as an opportunity for banks to uniquely position themselves to attract and retain young talent.”
San-Francisco based First Republic Bank liked the platform so much, they acquired the company at the end of last year. Roughly 700 of First Republic’s employees are receiving the benefit.
Savarese said the bank began using Gradifi about a month ago and 12 percent of the company’s employees have already signed up. And it’s not just Millennials – older employees with student debt are signing up as well, she said.
Cape Cod Five will give its employees that sign up $100 per month for a maximum of five years.
Employers can also tailor their student loan assistance through Gradifi in any manner they choose.
Swansea-based BayCoast Bank has scaled its offering of the benefit, said Barbara Tripp, vice president of human resources. Full time employees receive $100 per month during their first year with the company, $125 per month in the second year and then $150 per month after for the rest of the time.
Employees can take advantage of the program for as long as they work at the bank and part-time employees can also take advantage of the benefit at a slightly reduced rate, she said, adding that 36 of the company’s 360 employees have signed up.
Marlborough-based Digital Credit Union is also offering the benefit through Gradifi, currently providing 196 of its employee’s student loan assistance of $125 per month, up to $10,000 in total relief.
“It’s a tight job market, with a 10-year low for unemployment, so now employers have to market themselves to candidates,” said Jane Fontaine, vice president of human resources at DCU. “This is going to be the benefit of the future.”
Why It Works
Before Gradifi, companies that considered offering student loan assistance were concerned about ensuring that the money they gave employees went directly to student debt.
Gradifi CEO Tim DeMello said the backend of the platform is electronically connected to a proprietary database of student loan providers, making it the largest single-payer student loan provider.
The company verifies that an employee has a student loan and then passes the contribution from their employer directly to the student loan provider so companies know definitively that the money is going to student loan debt, he said.
As Fontaine said, student loan assistance is the work benefit of the future. But one current problem, according to Fontaine, is that the contributions need to be put on employee’s W-2 form, meaning they are not tax exempt.
Lawmakers at the state and federal level are currently trying to remedy this problem with legislation that would provide employers offering this benefit with tax deductions or a tax-free benefit.
Although it may take some time for the legislation to pass, advocates are confident that the new benefit will catch on, especially if banks want to attract Millennials.
“At least 20 to 30 percent of our inquiries are from banks,” said DeMello. “I see the banking industry to be a big client for us.”
In a survey conducted by the organization American Student Assistance that polled 502 young workers between the ages of 22 and 33, 56 percent said they worry about repaying their loans either all the time or often.
Eighty-six percent, according to the survey, said they would commit to an employer for five years if the company helped pay back their student loans.
“In a sense, recruiting and retaining Millennials is no different than courting any other group,” said Daniel J. Forte, president and CEO of the Massachusetts Bankers Association. “The key is understanding what motivates them, and incorporating their energy and new perspectives into your institution’s culture, and maybe even modifying that culture a bit.”