Debt

Gradifi CEO On Disrupting Student Loan Debt Disruption

Student loan debt is among the heaviest financial burdens to shoulder.  Gradifi CEO David Chang tells PYMNTS that student loan repayments and refinancing – offered as an employee benefit, done automatically and with a range of options — can help cement the bond between young employees and forward thinking firms 

Debt is the burden that can keep on burdening — forcing borrowers to make choices that are sometimes less than ideal.

Consider student debt, which is carried by 44 million borrowers in the United States alone, and where $1.5 trillion is owed. Big numbers, to be sure, but let’s get granular for a moment.

Generally speaking, student debt is used as a conduit to higher education, and by extension, higher education leads to a greater income potential over one’s career.

It’s been well documented that student loans are the second largest source of consumer debt, after mortgages. The shouldered load can be eye-popping, as the class of 2017 owes, on average, $40,000 in student loans.

Drilling down a bit, in one study, by Oliver Wyman, 70 percent of college students who earn bachelor’s degrees borrow to get to their alma maters. The typical undergrad-as-borrower leaves with degree in hand and an average of $265 in monthly payments. Those who leave medical school have an average of $1,600 in monthly payments.

The burden can be such, said the study, that student loan payments can exceed what it costs to lease a car or own a home. Thus, choices must be made, sometimes less-than-palatable ones.

To that end, Gradifi, a unit of First Republic, is among tech-savvy firms that help companies expand their employee-benefit offerings well beyond the confines of 401Ks and gym memberships: The goal is to help employees ease the burden of their student loans through dedicated repayment plans or through refinancing.

In an interview with PYMNTS’ Karen Webster, Gradifi’s new CEO David Chang — all of a week and a half in his role and a PayPal alum (where he helmed that firm’s Boston office) — said that all too often in conversation with young borrowers, it becomes apparent that debt is steering their career choices.

He noted that in the recent past, during his tenures as entrepreneur-in-residence at Harvard Business School and director of the Babson Summer Venture Program, he’d spoken to young would-be entrepreneurs, buzzing with new, launch-worthy ideas but saddled with loans. These men and women opted to take jobs at big companies — “and that didn’t seem like something they’d wanted to do,” he said. Student loans, then, can alter the course of a career.

“The number of people this [debt] impacts is pretty big,” he told Webster, with a nod toward that aforementioned 44 million student/borrower tally.

What’s On Offer

He noted that Gradifi is addressing a few different markets. One, he said, is the millennial who has recently graduated and has existing debt. In this case, he said, “we work with employers to create a benefit that is similar to the 401K, where a company contributes and helps employees pay down their loans faster.” This is the product known as Student Loan Paydown and features employer-sponsored contributions made to employees’ student loan providers.

Over the past 12 months, Gradifi has brought other benefit solutions to market, among them one geared toward refinancing (known as Gradifi Refi), done with lenders including Earnest, First Republic and Lendkey. The company has said that across this offering employers invite employees to register for access and browse offers, and among them are no-fee refinancing options. Employers can also elect to make contributions directly to those loans.

Other workplace offerings though Gradifi include the College SaveUp offering, which helps employees save for their children’s education, along with employer contributions, steered into 529 college saving plans.

The solutions can be offered on a standalone basis or can be bundled, the company has said.

Doing Well by Doing Some Good

Benefits accrue to those employees who get a boost from employers matching their efforts to pay down debt and save for the future. But, noted Chang, employers see a benefit too. “What we’ve seen so far is that the cohort of people that take advantage of [Gradifi’s offerings] versus the cohort that doesn’t is that the retention rate is higher.”

By way of example, the company has estimated that of those employees utilizing the student loan paydown option, 58 percent are likely to stay at their current job, 52 percent state that they have “little to no stress” about repaying their student loans, and 96 percent report being happy at their place of employment. That’s especially important as these are exactly the employees Chang said “you’d want to have around — these are the ones who have gone through the pain of investing for education … and they are disproportionately productive.”

And yet, the idea of employers doing well — by reducing turnover, and by having productive employees in place for quite a while, by dint of offering programs that boost financial well-being — has yet to catch on. This is despite the Oliver Wyman findings, where 58 percent of survey respondents with outstanding student debt said they would prefer their employers make payments to help reduce their student debt versus making additional contributions to their retirement funds.

Chang estimated that “the number of people that take advantage of this is less than three or four percent so market penetration is really early. The companies that have adopted this are the more forward-leaning companies,” he said. He estimated that the addition of the savings and refinancing options to the paydown benefit has roughly doubled Gradifi’s addressable market. He explained that in the current business model there is a monthly fee for every active participant in Gradifi’s programs (Gradifi facilitates the payments, and the actual movement of money as employers make contributions into, say, an employee’s 529 account).

Given that the fact that it’s early days yet in this financial-well-being-as-an-employer-benefit arena, Chang likened the ongoing efforts of Gradifi and other companies as a “land grab” that can see significant benefit from landing larger firms as clients. He stated that there are several firms of size that are piloting Gradifi’s programs, while its current roster of 500 employers is double the number seen a year ago.

Gradifi, said Chang, operates with “a very distinct vision around the idea that loans are a problem and we want to help students pay back those loans — and we think that employers can help finance that.”

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