Employers Offer Student Debt Matching to Boost Retirement Contributions: Despite a law that makes it simpler for businesses to do so, employers are hesitant to offer employees a new perk that would assist many of them in paying down student loans and saving for retirement, according to experts.
A provision of the SECURE Act 2.0 Act, enacted in December 2022, permits employers to consider student loan payments when calculating matching 401(k) or other retirement contributions for the first time this year. Its purpose is to assist Americans in avoiding the challenging decision of whether to save for retirement or repay student loans.
However, persistent economic concerns, such as the possibility of a deceleration, may thwart those strategies.
Experts assert that companies are not in a rush to offer the benefit to employees in light of the uncertainty. Borrowers will continue to contemplate the most efficient way to allocate their income.
The nonprofit trade association Plan Sponsor Council of America surveyed this year found that nearly two-thirds of companies will not offer student loan matching, and only 5% have implemented it or intend to this year. Respondents were prompted to provide a variety of reasons for not intending to offer this benefit, including cost, complexity, competing priorities, lack of interest, or necessity.
“At this time, compensation teams are primarily concerned with cost control, so many will likely be hesitant to consider expanding their benefit offerings,” predicted Aaron Terrazas, chief economist at the employment website Glassdoor.
However, industries that require talent attraction and retention, such as professional services and health care, may proceed more quickly, according to Tom Armstrong, vice president of customer analytics and insight at Voya Financial.
SAVE Student Loans Program: Is the program for student loans taxable?
What is matching for student loans?
Your employer would contribute to your 401(k), 403(b), or another qualifying retirement account plan whenever you made a payment on your student loans. The exact match structure is contingent upon organizational policy, and employees would be required to annually attest to having repaid eligible student loans.
For instance, if an employer matches 401(k) contributions by 4%, reimbursing a student loan payment could earn you a dollar-for-dollar match up to 4% of your salary.
It is important to note that the student loan matching program is analogous to the 401(k)-match benefit in terms of match percentage, eligibility requirements, and vesting policies. Vesting may require you to remain employed by your employer for a specified period; otherwise, you risk losing a portion or the entirety of your employer-provided match. If you have not completely vested all of your matching contributions into your retirement account, you risk losing a portion or the entirety of those funds.
Will a greater number of organizations match student loans by 2024?
Voya’s Armstrong predicted that as 2024 progressed, an increasing number of businesses would contemplate adopting this benefit. His statement reads, “Although adoption is not substantial, interest is growing.”
“Student loan benefits of some kind will be prevalent at companies if the student debt crisis persists; however, I am unsure if it will be this one,” said Stacey MacPhetres, senior director of education finance at EdAssist by Bright Horizons, an organization that provides educational advisory services to families and organizations.
Businesses provide additional student loan assistance.
Certain organizations that presently assist workers in repaying student loans see no reason to modify their benefits. MacPhetres cited additional sources as saying that their employees desire immediate assistance with student loan repayment and would rather make direct payments to reduce balances than participate in a retirement match.
Employers are permitted to provide tax-free student loan repayment benefits of up to $5,250 through 2025, per the Consolidated Appropriations Act of 2021. 34% of employers offered student loan benefits in October of last year, up from 17% in October of 2021, according to the human resources software company Paycor.
In addition to debt consolidation and refinancing services, some organizations administer third-party, interest-free, or low-interest educational loans and provide counseling for student loan repayment.
Connelly Partners, Staples, Fidelity, Chegg, ChowNow, and First Republic Bank are some of the companies that offer these alternatives.
How many individuals can benefit from assistance with corporate student loans?
The combined value of student loans held by approximately 45 million Americans is $1.75 trillion.
According to data from the Department of Education, only 60% of the 22 million borrowers whose October payments were due after the end of the student loan payment suspension had finished them by mid-November.
Medora Lee is a correspondent for USA TODAY, specializing in money, markets, and personal finance. For daily business news and personal finance advice, please subscribe to our free Daily Money newsletter, which she distributes Monday through Friday at [email protected].
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