More and more employers are offering to help repay their workers’ student loans as another benefit to attract and retain talent, but loan servicers’ legacy payment processing systems and other technical issues are stymieing efforts, according to the Consumer Finance Protection Bureau’s report, “Innovation highlights: Emerging student loan repayment assistance programs.”
Private-sector employers are joining many state and local governments, as well as nonprofits, to help more workers repay their student debt, according to the bureau’s report. Employers are offering this help as a benefit, much like helping with 401(k) contributions, and are either paying loan servicing companies directly or through employer-sponsored third-party repayment assistance programs.
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“These entities note that student loan repayment assistance programs may be a promising way to reduce borrowers’ overall financial stress, but potential barriers to additional innovation exist,” the authors write. “Industry stakeholders highlight a complex process for making third-party payments driven by student loan servicers’ legacy information technology, all-too-frequent payment processing errors, and the servicing industry’s lack of a standardized process for handling third-party payments.”
The bureau recommends that loan servicing companies and policymakers consider taking the following steps to improve the repayment process, particularly for third-party providers:
Implement a clear and easily accessible process for third-parties to direct electronic payments to borrowers’ individual student loans
Develop consistent, industry-wide standards for processing payments, including payments made by third parties
Modernize and publish clear direction for servicers and third-party payers related to payment processing, particularly where payments affect existing federal student loan benefits and consumer protections
Explore ways to improve safe and secure access to student loan data by properly authorized third parties
Despite initial challenges, executives at third-party payment companies tell MarketWatch that they’ve started to see servicers take steps to better accommodate their offerings.
Tim Demello, the founder of Gradifi, one of the platforms that works with employers offering student loan repayment, says that he used to have to sending individual checks to student loan servicers on behalf of employers when he first started offering this service in 2015. However, now Gradifi is able to send electronic payments to about 90 percent of the servicers they work with.
The bureau’s report also lists several recommendations for third-party repayment assistance program providers and administrators, including making sure they support all borrowers struggling to repay student loan debt – including parents who co-sign loans or take out loans on their own to pay for their children’s college tuition. The bureau also recommends that providers and administrators ensure access to existing federal benefits and protections for student loan borrowers and provide tailored enrollment information to employees.