Will employers opt to help workers pay down student loans?
Will employers opt to help workers pay down student loans?
Life is full of trade-offs, and renewed attention to paying back those student loans could take from your ability to save for retirement. However, there’s a way U.S. companies could help employees pay down student loan debt the way they can help you save for retirement. But will your employer go for it?
Chris Farrell, Marketplace’s senior economics contributor, joined “Marketplace Morning Report” host David Brancaccio to discuss. The following is an edited transcript of their conversation.
David Brancaccio: So I guess it would make logical sense that if you’ve got to pay more student loans, you might be less attentive to socking away money for retirement, but is there actual evidence?
Chris Farrell: So there’s a recent example. It comes from the Employee Benefits Research Institute and J.P. Morgan Asset Management. So they did a study [over a] three-year period, and what they found in their database is that the average retirement balances were lower for those paying off student loans compared to those who weren’t making the payments. For example, among 401(k) participants with tenures of five to 12 years, the average balance for those paying down student loans was about $86,000. And that compares to nearly $108,000 for those who weren’t.
Brancaccio: Now, economists love real-world experiments, and we just had one, perhaps for the wrong reasons — the pandemic — but student loan payments stopped for many. So the question then becomes, if you don’t have to pay the student loans. Do you kick some of that money into your retirement plan?
Farrell: Yes. Here’s the thing: So almost one-third increased their contribution rate into retirement savings by at least one percentage point when their student loan payments stopped. Now, on the other hand, one quarter lowered the contributions by at least a percentage point if their student loan payments started during the three-year period. In other words, it’s likely now that with payments resuming, the negative impact on retirement savings will also resume.
Brancaccio: All right, then Secure Act 2.0 —
Farrell: You love that phrase, don’t you?
Brancaccio: Late 2022, this is relevant here. It allows employers to treat an employee’s student loan payments as a retirement savings contribution. It’s supposed to start this year. Where are we with this?
Farrell: Employees, they can get this matching contribution from their employer into their employer-sponsored retirement savings plan for making their student loan payments and the Internal Revenue Service in August came in with the interim guidelines. By the way, it’s up to the employer to offer the perk.
Brancaccio: And they just got the rules as we came out of the summer. So you can imagine there’s going to be a delay, but are some employers looking at this?
Farrell: So some have done it, but they seem to be moving cautiously. There are some ongoing logistical compliance concerns. For example, I’ll give you one big concern among employers is the requirement that they must prove planned participants are making eligible student loan repayments.
Brancaccio: All right, I just wouldn’t want this to be small print-ed to death. In other words, let’s give them, what, six months and see if it’s moving forward?
Farrell: Look, the benefits are going to spread as management becomes more comfortable with the process. The kinks are smoothed out. You know, the inputs become more automated. These are early days.
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