Some borrowers with access to workplace retirement plans may finally have a reason to look forward to paying their student loan bills — or at least fear them a little less.
Under rules that took effect Jan. 1, employees may be able to match monthly debt payments as contributions to an employer-sponsored retirement plan, such as a 401(k). In other words, some borrowers can, or will soon be able to, save for retirement by repaying student loans.
The workplace benefit is one of many made possible by the SECURE 2.0 Act of 2022, a package of retirement plan provisions intended to help Americans grow their savings. And the timing is impeccable now that more than 28 million student loan borrowers resumed payments last fall after a long forbearance due to the pandemic.
Despite targeted debt relief measures and income-driven repayment options introduced by the Biden administration, Department of Education data suggests many are already struggling. Of the 22 million people who had bills due in October, only about 60% paid them by mid-November.
At the same time, there is plenty of research that points to student loans as a major deterrent to saving for retirement. A December study by insurance company Allianz Life found that 66% of borrowers reported they have (or will have to) reduce their pension contributions to repay their loans.
Student loan supplementation could be the relief borrowers need to save for the future — if their companies decide to offer the benefit. Unlike some SECURE 2.0 provisions, such as the auto-401(k) enrollment requirement that goes into effect next year, student loan debt matching is optional for employers.
How does student loan matching work?
With a typical workplace retirement plan – such as a 401(k), 403(b) or government plan – employers can match workers’ contributions, dollar for dollar or up to a certain percentage of their annual compensation .
Student loan matching works essentially the same way, but instead of making optional deferrals from their paychecks, employees instead have their loan payments count as contributions.
SECURE 2.0’s student loan is based on a program from health technology company Abbott called Freedom 2 Save, which has enrolled more than 2,800 employees since its inception in 2018, a spokesperson says. Employees must demonstrate that at least 2% of their annual pay goes toward student loans to qualify for the 5% of the program. (Those who are not enrolled in Freedom 2 Save but participate in the company’s 401(k) plan must contribute at least 2% of their salary to their retirement account to receive the 5% match.)
Abbott needed special permission from the IRS to launch the program years ago. Now, any company can create and customize their own student loan matching benefit thanks to the legislation.
Which Companies Match Student Loan Payments?
Demand for this type of financial support from employees is widespread. In a recent survey conducted by financial services company SoFi, 90% of employees said they want programs that help them achieve their goals while paying off student debt. The same percentage said they would be more likely to stay with a company if it matched their student loan payments as retirement contributions.
Some large companies have added this benefit since the passage of SECURE 2.0, including Chipotle, Verizon, engineering and design firm Kimley-Horn, NewsCorp, and others.
New platforms are emerging to help HR departments more easily integrate the benefit: Financial consulting firm Betterment recently unveiled a product that allows small employers to automatically match employees’ student loan payments as 401 contributions ( k).
However, it is difficult to gauge to what extent the benefit will be implemented. The SoFi report found that 40% of 750 HR leaders surveyed plan to start offering such a program this year, but in a separate 2023 survey by the National Association of Plan Advisors, less than 5% of companies said they have or add matching student loan to their benefits. Those who said they didn’t want it cited reasons such as cost, administrative requirements, tax implications and compliance and documentation issues.
Student loan matching also benefits employers
Kevin Gaston, director of plan design consulting for fintech firm Vestwell, says he expects industries that require more education, and therefore have more employees with student loan debt, to boast higher adoption rates. Some employers, such as those in the healthcare, legal and education sectors, may be more incentivized to provide the benefit as a way to increase employee loyalty.
“In a world where we see average employee tenure continuing to decline [decline] …this is not an expensive way to get more people to stay and stay longer,” he says.
There’s evidence to support this: Abbott estimates that employees who participate in Freedom 2 Save are 19% more likely to stay with the company than those who don’t, according to a recent project detailing the creation and the impact of the program.
Some employees may already have other financial education benefits available to them. More than a dozen large companies maintain programs to help workers with student loans, refinancing and tuition costs.
One example is the health insurance company Aetna, which offers up to $10,000 for employees who graduated within the last three years. The cosmetics brand EstANDand Lauder provides $100 monthly debt assistance up to $10,000, and companies like New York Life, Fidelity Investments and Ally offer similar benefits. U.S. government employees may also be eligible for loan repayment assistance through the Federal Student Loan Repayment Program.
With many unknowns about the benefit’s future, Gaston encourages employees to contact their human resources departments and advocate for the student loan savings supplement. Companies may not even know much about the new option, and demonstrating workers’ needs could influence leadership to at least look into it.
“There’s a great time here [for] employees,” he explains. “This is their chance to make up for lost time.”
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