In July 2016, student loan platform CommonBond acquired online loan repayment advisor Gradible. The acquisition of Gradible, which uses an algorithm to recommend what the best repayment options are for student loan borrowers, has enabled CommonBond to roll out a new platform that it’s calling the 401(k) for student loans.
The 401(k) platform will enable employers to contribute to their employees student loans just as they contribute to their employees’ retirement. “What the acquisition of Gradible allows us to do is to marry up certain technologies that they’ve built with technologies that we’ve already built to accelerate the platform,” said David Klein, co-founder and CEO of CommonBond.
Gradible’s merger with CommonBond was two years in the works. A personal connection lead CommonBond to partner with the software company, becoming one of the refinance options Gradible offered on its platform. Eventually, CommonBond’s desire to expand its reach together with Gradible’s intention to accelerate its vision led to the merger.
However, the 401(k) platform is more than just an extension of CommonBond’s suite of refinancing products; it’s a new way of addressing the student loan debt ecosystem. The consumer has many different relationships in their lives with financial providers, and CommonBond has begun to recognize that there is a way for financial providers to play more roles in consumers’ financial lives.
“If you hold student debt, regardless of whether refinancing is right for you, regardless of whether we talk to you directly or go through your employer, we’re now enabling you as employee with student debt to pay off your debt faster because we’re enabling your employer to put some capital towards that principal payment,” explained Klein.
Perhaps as a sign of how the 401(k) for student loans is an idea whose time has come, Klein cites employers as the driver behind this new platform. CommonBond had kicked around this notion, but it was really the employers themselves that helped direct what the platform could look like and what it was capable of doing. Partners and prospective partners on the core refinance side of CommonBond’s business had begun to ask how they could contribute directly to their employees’ student loans. CommonBond was listening.
“We decided that this is something that’s going to be really important to employers,” said Klein. “It’s something that we can build, and it’s something that the acquisition of Gradible can accelerate.” CommonBond has already begun to market the 401(k) platform to companies around the country. Its target employers are those who employ a goodly amount of millennials (an astonishing 81% of whom have at least one form of long-term debt, including student loan debt) and employers who focus on recruiting and retaining top talent.
Klein believes that bringing Gradible in-house will enable CommonBond to reach and meaningfully impact every one of the over 40 million Americans saddled with student debt, and to a certain extent this is true. As a student loan reassessment tool, Gradible can help students discover alternative ways to manage their debt, such as income-based repayment and public service loan forgiveness.
But the 401(k) will ultimately serve the “top talent”, who are the most likely to make it out of student debt in the first place.
Still, early response to the platform has been positive. CommonBond had one company ask it to implement the platform for them, and Klein has also piloted the 401(k) at CommonBond itself – much to its employees’ delight. Each employee at CommonBond receives $1,200 a year to pay off student loans, though this employee perk comes at the expense of the traditional matching retirement contribution.
“We think about it in terms of staging,” Klein explained. “I can’t wait until we start matching our 401(k) contribution, but it’s not yet.”
While the CommonBond-Gradible marriage can’t fix what’s broke with the student loan industry at large, its 401(k) product is opening up the traditional closed lender-borrower relationship to employers. So far, this threesome has benefited the entire loan ecosystem: lenders are getting repaid faster, employees are happier, and employers are meaningfully participating in their employees’ financial lives.