Linda Meltzer
Wealth of Geeks
Wealth of Geeks
According to a TIAA-Massachusetts Age Lab survey, 84% of borrowers say student loans negatively impact their ability to save for retirement. The longstanding challenge is whether Americans with academic debt should pay off their loans or begin retirement savings.
That dilemma temporarily eased during the pandemic-era payment forbearance without interest accruals. During that pause, Fidelity’s Retirement Analysis found that 72% of student loan borrowers could save at least 5% of their salary in their 401(k) retirement account, a jump from 63% before suspending the payments.
A more significant solution became effective in 2024 as part of Secure 2.0, allowing employers to help employees saddled with student loan payments who want to save for retirement.
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Employer matches approved
The new feature, effective January 1, 2024, permits companies to treat employee-qualified student federal or private loan payments as matching contributions into a 401(k) plan, 403(b) plan, 457(b), or SIMPLE IRA. This provision is not mandatory for companies, but there is increased relief demand for students concerned about the renewed responsibility to pay their loans.
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Student payments resumed, but not all are ready
During the payment pause, some borrowers — particularly those with graduate degrees and higher incomes — continued paying their loans to take advantage of the unprecedented temporary 0% student loan interest rate. Also according to the New York Fed, about 10 million borrowers with private loans or Family Federal Education Loan (FFEL) loans owned by commercial banks didn’t get any relief. They continued to make payments during the pandemic.
Despite the Biden Administration’s unsuccessful efforts to forgive federal student debt across the board, repayments resumed in September 2023. 22 million borrowers owed payments due in October 2023. However, according to the U.S. Department of Education, just 60% managed to make a payment by mid-November. Amid budgeting challenges among borrowers, those with loans have until September 2024 before missed payment consequences resume — including delinquency, default, and collections.
—————
Student debt defaults could rise
In 2023, total U.S. student loan debt surpassed $1.7 trillion, a cumulative number drawn from nearly 44 million borrowers. Federal loans comprise over 92% of the total student loan debt. Approximately 7 million students — 10% of Americans — are in default, even with payment plans and refinancing alternatives.
Defaults occur after missing payments for more than 270 days and could rise once consequences return in 2025. Potential default penalties include garnished wages and impacted credit scores.
—————
Making student payments reduces retirement savings
Even making minimum student loan payments causes lower 401(k) retirement account contributions. An Employee Benefits Research Institute (EBRI) study found that employees working at the company for five to 12 years and earning $55,000 or more have an average 401(k) balance of $86,109, compared to $107,687 for those who did not.
—————
Student loan benefits provide advantages for employers
A Morning Consult Survey on behalf of Abbott Laboratories found that 94% of participants are interested in workplace benefits, like 401(k) contributions. 54% said such workplace benefits would play a significant role in their job selection process, so Abbott Laboratories sought IRS approval for a new program.
Abbott says employees participating in Freedom2Save are 19% likely to stay at the company. The Freedom2Save program, launched in 2018, makes a contribution to employees’ 401(k). The company contributes 5% annually to the retirement account if the employee puts at least 2% of their salary toward paying off a qualified student loan. The money is guaranteed, even if the employees don’t contribute to a retirement account that year. Since its launch, 2,500 employees enrolled in the program.
Abbott is not alone. Other companies — Fidelity, Nvidia, Google, New York Life, and Estee Lauder — offer similar student loan benefits to employees who want to grow their retirement accounts.
Such contribution matches are game-changers for employees with student loans wanting to prioritize early retirement savings. With some relief, students can achieve their financial targets. Several employers moved early to help employees with student borrowings, though many have yet to adopt this option.
The Society of Human Resources Management (SHRM) says just 8% of companies offered student loan repayment benefits in 2019. According to H.R. Executive, 42% of employers now offer a 401(k) student loan match, with another 23% expected to do so within the next year or two.
Repayment assistance poses potential company tax benefits. The updated Consolidated Appropriations Act states that, through December 31, 2025, employers can give each employee $5,250 annually in tax-free student loan assistance under a Qualified Educational Assistance Program. This amount is not part of the employee’s regular wages but will be subject to payroll taxes if the company exceeds that level.
—————
A game-changer for students tackling loans
Those who owe on student loans may face challenges finding money to fund their retirement accounts. This option helps them build up assets for retirement without the need for delay. Some raise the concern that this feature may lower their contributions if they earn the employer’s match contribution. While that is possible, proponents point to an overall advantage to the economy. When more people get the opportunity to improve their financial health, it benefits everyone in the long run.
That dilemma temporarily eased during the pandemic-era payment forbearance without interest accruals. During that pause, Fidelity’s Retirement Analysis found that 72% of student loan borrowers could save at least 5% of their salary in their 401(k) retirement account, a jump from 63% before suspending the payments.
A more significant solution became effective in 2024 as part of Secure 2.0, allowing employers to help employees saddled with student loan payments who want to save for retirement.
—————
Employer matches approved
The new feature, effective January 1, 2024, permits companies to treat employee-qualified student federal or private loan payments as matching contributions into a 401(k) plan, 403(b) plan, 457(b), or SIMPLE IRA. This provision is not mandatory for companies, but there is increased relief demand for students concerned about the renewed responsibility to pay their loans.
—————
Student payments resumed, but not all are ready
During the payment pause, some borrowers — particularly those with graduate degrees and higher incomes — continued paying their loans to take advantage of the unprecedented temporary 0% student loan interest rate. Also according to the New York Fed, about 10 million borrowers with private loans or Family Federal Education Loan (FFEL) loans owned by commercial banks didn’t get any relief. They continued to make payments during the pandemic.
Despite the Biden Administration’s unsuccessful efforts to forgive federal student debt across the board, repayments resumed in September 2023. 22 million borrowers owed payments due in October 2023. However, according to the U.S. Department of Education, just 60% managed to make a payment by mid-November. Amid budgeting challenges among borrowers, those with loans have until September 2024 before missed payment consequences resume — including delinquency, default, and collections.
—————
Student debt defaults could rise
In 2023, total U.S. student loan debt surpassed $1.7 trillion, a cumulative number drawn from nearly 44 million borrowers. Federal loans comprise over 92% of the total student loan debt. Approximately 7 million students — 10% of Americans — are in default, even with payment plans and refinancing alternatives.
Defaults occur after missing payments for more than 270 days and could rise once consequences return in 2025. Potential default penalties include garnished wages and impacted credit scores.
—————
Making student payments reduces retirement savings
Even making minimum student loan payments causes lower 401(k) retirement account contributions. An Employee Benefits Research Institute (EBRI) study found that employees working at the company for five to 12 years and earning $55,000 or more have an average 401(k) balance of $86,109, compared to $107,687 for those who did not.
—————
Student loan benefits provide advantages for employers
A Morning Consult Survey on behalf of Abbott Laboratories found that 94% of participants are interested in workplace benefits, like 401(k) contributions. 54% said such workplace benefits would play a significant role in their job selection process, so Abbott Laboratories sought IRS approval for a new program.
Abbott says employees participating in Freedom2Save are 19% likely to stay at the company. The Freedom2Save program, launched in 2018, makes a contribution to employees’ 401(k). The company contributes 5% annually to the retirement account if the employee puts at least 2% of their salary toward paying off a qualified student loan. The money is guaranteed, even if the employees don’t contribute to a retirement account that year. Since its launch, 2,500 employees enrolled in the program.
Abbott is not alone. Other companies — Fidelity, Nvidia, Google, New York Life, and Estee Lauder — offer similar student loan benefits to employees who want to grow their retirement accounts.
Such contribution matches are game-changers for employees with student loans wanting to prioritize early retirement savings. With some relief, students can achieve their financial targets. Several employers moved early to help employees with student borrowings, though many have yet to adopt this option.
The Society of Human Resources Management (SHRM) says just 8% of companies offered student loan repayment benefits in 2019. According to H.R. Executive, 42% of employers now offer a 401(k) student loan match, with another 23% expected to do so within the next year or two.
Repayment assistance poses potential company tax benefits. The updated Consolidated Appropriations Act states that, through December 31, 2025, employers can give each employee $5,250 annually in tax-free student loan assistance under a Qualified Educational Assistance Program. This amount is not part of the employee’s regular wages but will be subject to payroll taxes if the company exceeds that level.
—————
A game-changer for students tackling loans
Those who owe on student loans may face challenges finding money to fund their retirement accounts. This option helps them build up assets for retirement without the need for delay. Some raise the concern that this feature may lower their contributions if they earn the employer’s match contribution. While that is possible, proponents point to an overall advantage to the economy. When more people get the opportunity to improve their financial health, it benefits everyone in the long run.
