Tony Aguilar was a first-generation college student who graduated with $102,000 in student loans.
“We didn’t know what the financial aid options were, and I financed everything to go to school,” says Aguilar, a native Texan who graduated from Indiana University in 2007. “As a 22-year-old in an entry-level position, my payments were almost half of my paycheck.”
Aguilar went on to become a financial adviser, where he counseled others who were struggling with student debt. Convinced that there had to be a better way to cope with debt payments, he co-founded Student Loan Genius.
The two-year-old Austin startup lets companies create matching programs that help their employees pay off their student loans faster. The company’s service allows employers to contribute to paying off an employee’s student loan, as well as providing automatic payment plans and helping employees with repayment strategies.
Student Loan Genius is currently working with 47 companies, which have incorporated its student loan benefits into their employee benefit packages. Using the platform, companies contribute matching dollars to employees’ student loan payments through a program called “Genius Match.”
Now Student Loan Genius is launching a new service that lets workers use their 401K plans as a catalyst to save for retirement.
Today the company will unveil the program, which works like this: Employees make their student loan payments, and based on the payment, the employer makes a pre-tax contribution into the employee’s 401(k) or other retirement account. That allows the company to contribute to the retirement plan, even though the employee is making a student loan payment.
Aguilar said the service works with existing benefits frameworks. That means that means Student Loan Genius didn’t have to wait for Congress to change the current tax code to enable companies to use pre-tax dollars for a student loan benefit.
Nearly 70 percent of graduating seniors left school with an average of $28,400 in student loan debt in 2013, according to a report from the Institute for College Access and Success.
For employers seeking to hire millennials, Aguilar says, that makes the 401K program a powerful tool for recruiting and retention.
“Employees are saying, ‘I can’t afford to put 6 percent of my income into a 401K when I have a $500 a month student loan payment,” Aguilar said. “Meanwhile, the employers have already funded matching dollars to go to 401Ks. Now the employer can put those dollars to work, and the employee gets the benefit.”
Student Loan Genius makes money by charging companies a fee to provide the service to their employees.
Aguilar said his company plans to roll out additional services, as it puts a recent $3.1 million investment to work. Last month, Student Loan Genius received $3.1 million from Gibraltar Ventures, Kapor Capital, Capital Factory and Village Capital.
The company, which currently has offices at Capital Factory, has 11 employees and is hiring in marketing and development.