Employers Have a New Way to Help Student Loan Borrowers Save for Retirement. Will They Use It?

Certain borrowers with access to workplace retirement plans may finally have a reason to look forward to paying their student loan bills — or at least dread them a bit less.

Under rules that went into effect Jan. 1, employees may be able to have their monthly debt payments matched as contributions to an employer-sponsored retirement plan, like a 401(k). In other words, some borrowers can, or will soon be able to, save for retirement by repaying their student loans.

The workplace benefit is one of several made possible by 2022's SECURE 2.0 Act, a package of retirement plan provisions intended to help Americans grow their savings. And its timing is impeccable now that over 28 million student loan borrowers resumed payments last fall, following a lengthy forbearance due to the pandemic.

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Despite targeted debt forgiveness measures and income-driven repayment options introduced by the Biden administration, Department of Education data suggests many are already struggling. Only about 60% of the 22 million people who had bills due in October paid by mid-November.

At the same time, there’s an abundance of research that points to student loans as one of the primary deterrents to saving for retirement. A December study by insurance company Allianz Life found that 66% of borrowers reported that they have (or will have to) reduce their retirement contributions to pay off their loans.

Student loan matching could be the relief borrowers need to save for the future — if their companies decide to offer the benefit, that is. Unlike certain SECURE 2.0 provisions, like the auto-401(k) enrollment requirement that kicks in next year, student loan debt matching is optional for employers.

How does student loan matching work?

With a typical workplace retirement plan — like a 401(k), 403(b) or government plan — employers can match workers’ contributions, either dollar-for-dollar or up to a certain percentage of their annual pay.

The student loan match works essentially the same way, but instead of making elective deferrals from their salaries, employees have their loan payments counted as contributions instead.

SECURE 2.0’s student loan match is based on a program by health care tech company Abbott called Freedom 2 Save, which has enrolled more than 2,800 employees since its 2018 inception, a spokesperson says. Employees have to show that at least 2% of their annual pay is going toward student loans to qualify for the program’s 5% match. (Those who aren't enrolled in Freedom 2 Save but participate in the company’s 401(k) plan have to contribute at least 2% of their salary to their retirement account to receive the 5% match).

Abbott required special permission from the IRS to launch the program years ago. Now, any company can create and customize its own student loan matching benefit thanks to the legislation.

Which companies match student loan payments?

The demand for this type of financial support from employees is widespread. In a recent survey from financial services company SoFi, 90% of employees said they want programs that help them reach their goals while paying off student debt. The same share said they’d be more likely to stay at a company if it matched their student loan payments as retirement contributions.

A few large companies have added the benefit since SECURE 2.0’s passage, including Chipotle, Verizon, engineering and design firm Kimley-Horn, NewsCorp and others.

There are new platforms emerging to help HR departments more easily integrate the benefit, too: Financial advisory company Betterment recently unveiled a product that allows small employers to automatically match employee student loan payments as 401(k) contributions.

Still, it’s hard to gauge just how widely the benefit will be implemented. The SoFi report found that 40% of 750 human resources leaders surveyed have plans to start offering such a program this year — but in a separate 2023 survey by the National Association of Plan Advisors, fewer than 5% of firms said they have or will add student loan matching to their benefits. Those who said the wouldn't cited reasons like cost, administrative requirements, tax implications, and compliance and documentation headaches.

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Student loan matching benefits employers, too

Kevin Gaston, director of plan design consulting for the fintech company Vestwell, says he expects industries that require more education, and therefore have more employees with student loan debt, to boast higher adoption rates. Certain employers, like those within the health care, legal and education sectors, may have more of an incentive to provide the benefit as a way to increase employee loyalty.

“In a world where we see the average tenure of employees continuing to [decline] … this is not an expensive way to get more folks to stick around, and stick around longer,” he says.

There's evidence to support that: Abbott estimates that employees who participate in Freedom 2 Save are 19% more likely to stay at the company than those who don't, according to a recent blueprint detailing the program’s creation and impact.

Some employees may already have other education finance benefits available to them. More than a dozen major companies maintain programs to help workers with student loans, refinancing and tuition costs.

One example is health insurance provider Aetna, which offers up to $10,000 for employees who have graduated within the past three years. The cosmetics brand Estée Lauder provides $100 in monthly debt assistance up to $10,000, and companies like New York Life, Fidelity Investments and Ally offer similar benefits. Employees of the U.S. government may also be eligible for loan repayment assistance via the Federal Student Loan Repayment program.

With much unknown about the future of the benefit, Gaston encourages employees to reach out to their human resources departments and advocate for the student loan savings match. Companies may not even know much about the new option, and demonstrating worker need could sway leadership to to at least look into it.

“There’s an amazing moment here [for] employees,” he says. “This is their chance to make up for lost time.”

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