The biggest impact on employers who are considering how student loan payments and matching programs will impact the participation in their retirement plans may be that younger generations are forgoing college altogether.
Over the last five years, employers took note of the role benefits played in recruiting employees. Many employers diversified their benefits options, especially in terms of retirement options. Some added additional auto-savings options like IRAs or HSAs. Others looked to how an employer could match payments to student loans, helping employees with higher debt move closer to retirement saving. These student loan payment programs were even blessed in the SECURE Act. But the state of student loans has created confusion in this area.
Despite earlier enthusiasm, employers did not choose to use the new matching program for student loan repayments. According to USA Today “[n]early two-thirds of companies that the nonprofit trade association Plan Sponsor Council of America surveyed this year said they won't offer student loan matching and only 5% have implemented it or plan to this year. When asked why they didn’t plan to offer this benefit, answers ranged from cost, complexity, competing priorities, lack of interest or necessity.”[1]
As we’ve discussed before, student loan debt has several substantial impacts on retirement saving. “Federal policies require that retirement benefits, like Social Security, can be withheld to pay delinquent loans…. current and future retirees with delinquent debt could face a 4-6 percent drop in retirement income due to withheld benefits.”[2] Student loan debt also doesn’t discriminate based on age. “While younger workers hold an average of $21,000 in student loan debt, those between ages 40 and 49 hold $27,000 and even those over age 60 hold $19,000.”[3]
In 2023 and 2024, federal programs to forgive student loans have been a major part of the Biden Administration’s policy plans and efforts. In 2023, there was significant media coverage of the Biden Administration’s plans to forgive (or “cancel”) some kinds of student loan debt which would have totaled $400 billion. Those efforts failed to withstand constitutional scrutiny and were struck down by the Supreme Court in June of 2023.[4] The Biden Administration then moved to act within a narrower sphere and forgave direct student loans where the borrower met all of the qualifications for forgiveness but had been administratively denied. That includes only loans where the borrower has paid for the required forgiveness period, usually 20 years. It does not include privately held student loans. These efforts only impacted 2% of Americans with student loans (800,000 of 43.5 million).
The Biden Administration rolled out more extensive efforts to assist with student loans in 2024. According to White House press releases,[5] their 2024 efforts are now working to continue remedying the public service loan forgiveness program that some participants alleged was so poorly run as to be fraudulent. Additional efforts include cancelling accrued interest amounts for federal student loan borrowers with loan interest amounts that resulted in owing more than they originally borrowed, which stunningly amounts to more than 25 million Americans. Biden’s plan would cancel up to $20,000 of the unpaid interest that has accrued for those borrowers. Other efforts will cancel the total amount of debt for a handful (approximately 10% of all student loan holders) and “provide more than 10 million borrowers with at least $5,000 in debt relief or more.”
The biggest impact on employers who are considering how student loan payments and matching programs will impact the participation in their retirement plans may be that younger generations are forgoing college altogether. According to Axios, skilled trades face a large labor gap, and younger workers are increasingly happy to fill it. “Enrollment in vocational programs jumped 16% last year, according to National Student Clearinghouse…. 54% of Gen Z-ers say a high school diploma is enough to get a well-paying, stable job…. [and] 46% of parents say they would prefer if their kids pursued alternatives to four-year college….” Given that, employers may want to consider focusing less on student loan matching programs and more on how to help employees who hold 529 Accounts, created to help save for college education. Provisions of the SECURE Act allow 529 Accounts to be converted to IRAs but may have tax implications for some employees.
[2] https://www.bcgbenefits.com/blog/unpaid-student-loans
[3] https://www.bcgbenefits.com/blog/student-loan
[4] https://apnews.com/article/student-loan-forgiveness-supreme-court-653c2e9c085863bdbf81f125f87669fa
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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