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Apply HN: 401L before 401K (Education loan)

5 points by vs2370 ↗ HN
Problem - Broken education loans http://www.wsj.com/articles/more-than-40-of-student-borrowers-arent-making-payments-1459971348?mod=e2fb

401L is a platform that enables employers to contribute certain agreed upon percentage towards its employee's(typically a new college hire) education loan repayment

How it works - Employer on boards the new employee into the system - Employee then choses a certain percentage of their salary to be paid towards their loan. - Employer fills in their contribution details( 1%, 2%, etc) - Every pay check date, the platform makes a timely payment to the loan.

9 comments

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treeform
This could be cool if the "401L" would have the proper tax incentives around it as well. I think there is very small tax incentive to repay student loans now. How does that work exactly?

Now if Employers add matching as a benefit that could be a cool perk. It seems like Employers stopped doing 401K matching lately. Did they stop and why?

vs2370
In some countries it does. Just like how companies get tax credits on their spendings on free food, perks etc this might also be covered. Good point, I will research on it.

All my employers have had great 401k match(upto 6%) and it is a key factor to attract talent. This can be a a great way to not only attract talent but also retain them for the period of their repayment of loan. And then similar programs can be expanded to mortgage, auto, child related loans, etc.

I think 401 k makes sense when you are first out of your debts. Planning for future retirement funds while being in debt currently does not sound very right

kjksf
Why involve employers in the loop at all? If automation is the goal, you could (presumably, not sure if it's actually legally/technically possible) connect someone's bank account to loan repayment.

How much of a pain it is for people to make those payments. Is it manual process now?

What's in it for the employer? Taking a significant headache of managing such system on behalf of the employee. There are probably legal ramifications for this scheme.

Presumably this would have to integrate with payroll systems. Which systems can you already integrate with?

Wouldn't employee be reluctant to disclose his loan repayment status? That doesn't sound like something employer should know.

Did you study potential legal ramifications of being intermediary between a person and loan provider?

vs2370
Thanks for your comment, Employers will do a percentage match towards the repayment. Also pay for the SaaS platform.

Currently a lot of students do not automate it because of not having the minimum balance on the due date. One more problem that it does solve just like 401k is to mandate some financial discipline. Like 401k they can obviously skip few months given that they will be fined by their bank.

Regarding benefits for employers - One is a benefit to attract talent. Some companies like deloitte pay off your one semester fee if were an intern who got and accepted a full time offer. Other employers have plans to pay towards your continuing education. I dont think this will add much extra cost to employer but yes there will def be some friction to onboard first few companies. But if Google is in, Facebook will not miss it

Either zenefits or adp. Right now none.

Yes sharing repayment status might be tricky. Good point. But employer doesn't have to see the repayment status though. The platform can automatically stop or notify the employee once the repayment is done.

I sent an email to few people who manage education loans at banks.

CaliforniaKarl
The first thing that came to my mind was that this would be a modified form a wage garnishing, but with employer contributions included.

Do you have plans to include lobbying as a budget item? Just searching around, it seems that "Make student-loan repayment pre-taxable" has been brought up in the US before.

I'm curious: Where would you expect to take your cut, and how? Would it be a flat fee per enrolled employee, or maybe a % of $ being contributed?

If something like this did become a reality, I would expect it to eventually be bought by a benefits-handling institution like Fidelity or CREF, something who already does tight interaction with corporate payroll platforms.

vs2370
No cuts. Ethically I dont think it is great to eat commissions out of repayments towards loan. I think it would work more like how gusto or small improvements works for ex. Another enterprise SaaS tool with per employee charge.

Also there might be other revenue streams. For example refinancing options or getting into loan market itself and marketing a loan that is in terms with employers, etc.

vs2370
Also no plans on any lobbying :)
brudgers
In the US, 401k's are enabled by legislation that provides tax deferred status for the income and its growth. Without enabling tax legislation wouldn't this sort of benefit be taxed as ordinary income? Is so, what advantage would this provide to employees and employers over cash and the standard student loan interest deductions?
bestattack
To evaluate this idea further, I'd want to know how fast (how much faster) the loan will be paid off given various salary percentages. Is this a good way to pay off a loan? (Do I even want to pay off the loan faster?)

As an employer, you have to convince me to offer it as a benefit, which means convincing me that my employees will love it, that it will help to attract and retain great people. This makes me worried because it is one of those "vitamin, not painkiller" problems - and it's a niche one at that - I am worried that people don't want it and it will be hard to get into people's hands.