Financial Planning

Your Employer Can Offer Student Loan Repayment Benefits. Here’s What to Know

By  Opher Ganel

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Employers can provide student loan repayment benefits to help employees with matching contributions to reduce debt thanks to SECURE 2.0 act.

We were fortunate (you might say privileged) enough to avoid student loans while our three kids went to college. As a result, all three graduated with $0 in student loan debt.

Not everyone is so lucky. Some of my clients racked up over $350,000 in student-loan debt. That level of debt is crippling. It can stop you from buying a house, getting married, having kids, and saving for your kids’ college and your own retirement.

In short, it can force you to put much of your life on hold. For years or even decades.

If you’re in a similar situation (hopefully not to such an extreme), recent tax-law changes may bring you a bit of cheer.

SECURE 2.0 - It’s About More Than Just Retirement Savings

Politicians sure love acronyms, don’t they?

Some even sort of make sense. Here’s an example: “Setting Every Community Up for Retirement Enhancement” or SECURE.

In 2019, Donald Trump signed into law the original SECURE Act. Call it SECURE 1.0. Then, this past December, Joe Biden signed into law the SECURE Act 2.0 as part of a huge omnibus budget law.

Both made massive changes in how we save and invest for retirement.

But, SECURE 2.0 included an extra little nugget for people who owe significant student debt.

Effective as of retirement-plan years after December 31, 2023, employers can contribute to your retirement plan amounts matching not just what you contribute to the plan, but also your “qualified” student loan repayments.

How Employers Can Offer Student Loan Repayment Benefits

As with many other complicated laws, not all the details are clear from the get-go, but here’s what the relevant section, number 110, says. 

Its purpose is to help employees who may be unable to save for retirement because their student debt is overwhelming, so they miss out on employer matching of retirement-plan contributions they can’t afford to make.

Section 110 thus allows employers to provide such matching contributions based on the employee making student loan payments. This applies to 401(k), 403(b), SIMPLE IRA, and (for government employees) 457(b) plans, with respect to “qualified student loan payments.”

“Qualified student loan payments” are defined broadly as repayment of any debt incurred by the employee solely to pay his or her qualified higher-education expenses.

An Employer Student Loan Repayment Example

Say your employer offers a dollar-for-dollar match of retirement-plan contributions up to 6% of your salary, and that salary is $100,000. 

This means you could contribute $6000 a year and get another $6000 from your employer into your retirement plan.

However, your required student loan payments are $3000, and you can’t afford to both make those payments and contribute $6000 to your retirement plan. 

You can only afford $6000 in total.

As things stand now, you’d pay $3000 against the loan, allowing interest on the debt to continue to accrue per the regular schedule. You’d then contribute to your retirement plan the remaining $3000 you can afford, receiving only a $3000 matching contribution, for a total of $6000 going into your retirement plan.

As of January 1, 2024, you’ll be able to use the full $6000 you can afford to pay down your student debt faster, reducing your interest costs. 

Based on SECURE Act 2.0 Section 110, your employer can then count the $6000 loan repayment as the basis for providing the dollar-for-dollar match, so you still have $6000 going into your retirement plan annually.

Once you pay off your loans, you divert the full $6000 to the retirement plan, for a total annual contribution of $12,000, including employer match.

Will Your Employer Match Your Student Loan Debt Repayment?

The SECURE 2.0 Act’s Section 110 allows your employer (starting next January) to match your student loan debt repayment with the same employer-match contributions to your retirement plan account as if you’d made that payment as a contribution to the retirement plan.

If your employer offers retirement plan matches already, ask if they plan to take advantage of the new rules and expand the match to student loan repayments, helping you get more aggressive with paying off the debt, paying it off more quickly, and reducing your interest costs.

As Matt Smith, CFA®, CFP®, CIMA®, CAIA®, Founder of Concert Financial Planning says, “The ability for employers to match student loan payments toward employees’ 401(k) accounts is a potentially huge win for my clients with significant student debt, largely incurred during law school. However, it only works if the firm actually does it.

“So far, we haven’t heard of this being rolled out for employees next year, but that doesn’t mean employees shouldn’t ask! An upswell of requests from employees could make this benefit a useful tool as law firms compete for the best talent. At the very least, employees should make it a topic of conversation in any employment negotiations.”

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

About the Author

Opher Ganel

My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals.

Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.

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This article originally appeared on Wealthtender. To make Wealthtender free for our readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a natural conflict of interest when we favor their promotion over others. Wealthtender is not a client of these financial services providers.

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

To make Wealthtender free for readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a conflict of interest when we favor their promotion over others. Learn more. Wealthtender is not a client of these financial services providers.
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