A new law that went into effect this year could help some of the 44 million student loan borrowers move toward their financial goals.
Passed in December 2022, the Standing Up Every Community to Enhance Retirement (SECURE) Act 2.0 will improve retirement savings by giving companies the option to make 401(k) matches more flexible. is intended to promote. If an employer opts in, an employee's student loan payments can count as her 401(k) contributions even if the employee chooses not to contribute to her 401(k) on her own. Section 110 of the Act states that the benefit applies to “qualified student loan payments,” which the Act defines as “any debt incurred by the employee solely to pay for qualified higher education expenses.” It is defined as “liability''.
Employers that have recently introduced the benefit include Chipotle and engineering consultancy Kimley-Horn. Abbott Laboratories first piloted the concept in 2018 with its Freedom 2 Save program, which had an IRS exception. It may take time for employers to implement it. Other companies, such as Adidas, offer student loan payment assistance in their benefit plans to attract talent.
The bill highlights the economic challenges that college-educated workers often face early in their careers. College tuition costs are rising, more than doubling in the 21st century alone, according to the Education Data Initiative, a nonprofit think tank.
Still, college graduates still outperform their peers. According to a study by the Social Security Administration, men who earn a bachelor's degree increase their lifetime earnings by $900,000, while women earn an increase of $630,000. For those with a graduate degree, the earning potential is even higher, increasing their lifetime earnings by $1.5 million and $1.1 million, respectively.
Repaying federal student loans has been a top priority for many borrowers since they resumed last October after a three-and-a-half year hiatus due to the pandemic. Some employees prioritize paying off loans over contributing to retirement plans, and that decision eats away at their most valuable years in the form of compound interest.
If you're struggling to pay your student loans, you may want to consider the SAVE plan, which the Biden administration announced last fall to help borrowers. When you enroll, you effectively cut the required monthly minimum payment on your federal loan in half. You may also consider contacting your student loan servicer for other options.
Consider making debt reduction a priority for 2024. As inflation slows, interest rates on savings accounts and CDs are expected to eventually fall, with financial experts recommending debt repayments over long-term savings this year.