With the federal student loan relief plan ruled unconstitutional by the Supreme Court, more employers are expected to consider offering student loan repayment benefits (loan paydown) or 401(k)/403(b) matching under the SECURE Act 2.0 of 2022. Federal student loan payments resume in October that haven’t been required for three years. Federal student loan borrowers are considering ways to save, in order to make the loan payments, including cutting back on discretionary spending (59%), taking on credit card debt (32%), and curtailing retirement savings (42%), per Empower research. During the forbearance, 31% of borrowers didn’t make any payments, and many say they reallocated their debt payments to retirement contributions, debt paydown, and emergency savings. This data shows the stress that employees may be under to manage competing financial priorities.
One form of relief for eligible borrowers is the Department of Education’s new permanent repayment program that would recalculate income-driven loan repayments, called the Saving on Valuable Education (SAVE) plan, which should be implemented before October payments are due. According to a White House fact sheet, the SAVE plan will cut borrowers’ monthly payments in half, allow many borrowers to make $0 monthly payments (based on family size and income), save all other borrowers at least $1,000 per year, and ensure borrowers don’t see their balances grow from unpaid interest. This plan aims to get borrowers into the habit of on-time and in-full monthly loan payments.
By the Numbers
- The outstanding federal loan balance is $1.644 trillion and accounts for 92.6% of all student loan debt, as of July 2023, per Student Loan Debt Statistics by EducationData.org.
- The International Foundation found that 9% of responding U.S. employers offered student loan repayment benefits in 2022 (up from 6% in 2020). For employers offering student loan repayment benefits, 45% pay the employee’s lending institution directly, rather than provide extra compensation to the employee while 28% reported reimbursement or direct payment to the employee.
- Looking ahead, 12% of employers offer or will offer student loan repayment contributions in 2024, according to the Mercer Health & Benefit Strategies for 2024 survey report.
- Student loan debt financial assistance was offered by 15% of plan sponsors overall, per JP Morgan 2023 Defined Contribution Plan Sponsor Survey findings. The data showed that larger plans were more likely to offer this benefit with 28% of plans sized at 250 million+ offering financial assistance.
Options for Supporting Employees
Financial wellness programs
Zooming out from student loans, the bigger picture is that employees have debt of varying types. Debt paydown may be a reason why employees aren’t saving for retirement or emergencies, in addition to other reasons. This may create financial stress for those workers, which affects their well-being and job performance. Gather information on employee goals and needs and how a financial wellness program could fill those gaps. It could be financial education on budgeting, cash flow or spending behavior change. The more personalized the better—either personal financial coaching or AI-based coaching apps can help with establishing habits and reaching goals. Especially younger workers or people who graduated within the past 3 years and will be repaying student loans for the first time, may have minimal knowledge or practice on managing finances. Another option could be an emergency savings plan with an employer contribution, like the one Delta launched in January 2023.
Loan repayment benefits
Companies that are in a financial position to directly pay down student loans can choose to make tax-free annual contributions of up to $5,250 per employee through December 31, 2025 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Some case studies show that employers see attaction and retention benefits from direct loan payments. For example, Fidelity Investments told SHRM online that attrition rates among employees participating in its program are 78% lower than for its general employee population.
SECURE 2.0 matching contributions to 401(k) or 403(b)
The SECURE 2.0 student loan matching provision is intended to make it easier for employees to accumulate retirement savings (with employer dollars) while paying student loan debt (with their own dollars). An employer’s primary motivation for offering this is to attract and retain talent. Treating student loan payments as elective deferrals for purposes of matching contributions is intended for employees who are saving nothing for retirement or not saving enough to earn the full match and are making student loan payments. Part 2 will cover more details on SECURE 2.0 matching, upcoming guidance expected from DOL and IRS, and implementation considerations.
Whether employers are considering enhancing financial wellness programs, offering student loan repayment benefits or 401(k) matching an employee’s student loan payments, here are actions to consider.
- Survey your employees to learn about their needs and benefit preferences/interests.
- Consider whether the company needs help with recruiting and retention.
- Assess existing financial wellness plans and/or total compensation plans already in place.
- Check with service providers on retirement plan participant demographics (e.g., participation rates and contributions) to estimate whether employees are deferring enough for a full employer match.
Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.