Boston startup behind a new benefit for debt-saddled workers: Student loan relief

Grads

Retirement plans are fine. But for workers lugging around a ton of student loan debt, immediate financial help might be more appealing.

That’s the idea behind a new employee benefit program designed by Gradifi, a Boston startup that has been operating behind the scenes until today.

Gradifi’s service is already in use by a big client: PricewaterhouseCoopers, the international accounting and consulting company, which announced last week that it was launching an education debt-relief benefit for junior employees.

Gradifi, a 12-person startup backed by about $3 million in seed investment, is hoping to entice more employers – and eventually, marketers of all stripes – into helping workers pay down their college loans.

“I think more entrepreneurs have to take on big societal problems,” Gradifi chief executive Tim DeMello said. “And this is a big societal problem.”

In some ways, Gradifi’s service is similar to a 401(k) retirement account. But instead of putting money into an employee’s retirement account, the company deposits it into a Gradifi-administered account that goes directly to paying off student loans.

In the case of PricewaterhouseCoopers, the company plans on paying $1,200 annually for up to six years on top of an employee’s salary. The plan will cover workers early in their careers, accounting for about 45 percent of the company’s 46,000 workers, The Washington Post reported.

Gradifi accounts are free for individuals. The company makes money from fees charged to the employer, anywhere from $3 to $5 per month for each person in the student loan repayment plan, DeMello said.

One disadvantage for Gradifi and its possible clients is that student-debt plans don’t get the same preferential tax treatment as retirement accounts, meaning employees are taxed on the student-loan benefits as if they were regular income.

That might explain why such plans are rare: the Society for Human Resource Management says that fewer than 5 percent of employers offer paid student-loan relief benefits. Eventually, DeMello says, there is hope that Congress will change the tax code so those debt benefits aren’t taxed as income.

The idea of helping pay down workers’ debt is emerging as educational costs continue to stack up. Federal Reserve officials say that student loan debt in the United States now tops $1 trillion, eclipsing automotive loans and credit card debt. That debt is held by more than 43 million borrowers, who owed an average of $26,700 at the end of 2014.

“Borrowers who left school in the Great Recession had particular difficulty with their student loan repayment, with many defaulting, becoming seriously delinquent, or not being able to reduce their balance,” the Federal Reserve Bank of New York wrote in a recent report.

Gradifi’s program with PricewaterhouseCoopers launches next year, and more employers are interested, DeMello said. “We have almost 100 companies right now on our waiting list for next year to launch,” he said. “It’s really become something that’s gathered a lot of steam.”

In the future, DeMello thinks Gradifi will be able to convince consumer companies to contribute to its users’ student-loan payback accounts, too. So instead of an auto dealer giving someone $2,000 cash back on a new car purchase, or a carrier offering to buy out a cell-phone contract, they might offer that as a credit within Gradifi, he said.

Updated 12:07 Oct. 1 to correct that employees have to pay income tax on their student-loan benefits, based on new information from the company.