Student loan debt in the U.S. weighs in at a massive $1.3 trillion, surpassing even auto loan debt and credit card debt.

You may have heard of alternative lending firms such as Earnest and Social Finance Inc. (a.k.a. SoFi), which offer student loan refinancing solutions, in addition to the more standard personal loans. Another private company, CommonBond, focuses exclusively on student loan refinancing and consolidation (you could also borrow financing for an MBA). 

A second wave of startups, however, is also offering to help third-party employers pay down their workers' student debt as a benefit.

Companies such as PricewaterhouseCoopers, a professional services firm, and Natixis Global Asset Management, a financial services company, are among the first to offer such repayment plans; PwC's is a pilot program, though the company plans to extend it to all employees beginning on July 1st. CommonBond similarly offers its employees up to $1,200 a year to go towards student loans. 

Gradifi, a Boston, Mass.-based startup headed up by founder Tim DeMello, presently works with more than 100 companies that have (or are planning to roll out) student loan repayment programs. The startup will send money provided by an employer to the workers' student loan servicer. It manages which employees are to receive the benefit by verifying that their student debt exists. In return, Gradifi brings in revenues from the employers--about $5 per worker, on average. Most companies are shelling out $100 in payments per month, DeMello says, or $10,000 payable at $250 per month.

Still, others are offering more creative plans, whereby employees can choose whether they want a fixed amount of money back to go towards being a gym member, say, or repaying their student debt, among other possible benefits. 

"We manage the whole process, end-to-end," DeMello explains of his service. "What the employer wants is loan verification." PwC is one of his major clients, which has about 15,000 employees enrolled on Gradifi. 

"My goal is to get one million employees in our platform in the next three to five years," he adds. Within the next year, he expects that he should have more than 100,000 employees enrolled on the platform, which would place his revenues at an estimated $6 million. 

Other companies that are implementing the benefit for employers include Tuition.io, a startup based in Santa Monica, Calif., and EdAssist, based in Watertown, Mass., which is owned by parent company Bright Horizons Family Solutions. 

Still, it's worth considering that student loan repayments from employers come as taxable income, which means that the benefit may end up costing workers more than they realize. (By contrast, a retirement account such as a 401(k) plan is tax-free.)

What's more, "it's not like having a higher salary because as soon as you run out of debt, you no longer get this benefit," noted Mark Kantrowitz, the publisher of the scholarship search website Cappex.com, in a recent interview with the Wall Street Journal.

"Right now it's a taxable benefit," DeMello admits. "We do an imputed income tax file, so you'll see a couple of dollars on each paycheck coming out." He notes that some of his companies -- about 20 percent -- are offering to shoulder the tax bill for their workers by paying a touch more. 

There is some effort in Congress to make the student loan benefit tax-free. Sen. Mark Warner (D., Va) for instance, has proposed "The Employer Participation in Repayment Act," which would allow employers to put up to $5,250 pre-tax annually for student loan debt. Unlike other measures aimed at reducing the collective debt crisis, Sen. Warner's bill has some support from Republican leaders, including Sens. John Thune (R., S.D.), Shelley Moore Capito (R., W. Va.), and Kelly Ayotte (R., N.H.).

CommonBond, for one, sees offering student loan dollars as a benefit as something of a recruitment strategy.  

"The majority of the company is made up of Millennials," notes the company's CMO, Phil DeGisi. "We were asking, 'what else can we do to attract and retain the talent that we're hiring?'" 

Since launching the program in December of last year, he says that 100% of eligible workers have opted in. And, unlike PwC (which caps its contributions at 72 payments), the startup will continue funding the debt until its paid back in full--or the worker leaves the company.

Published on: Mar 30, 2016