More employer benefits to support workers with student loans could ease stress

Americans rely too much on debt to pay for college.

Student loan debt totals more than $1.7 trillion, about 92% of which is federal loans among 43 million borrowers. Student loan debt disproportionately impacts women and people of color. Surveys routinely show that financial stress is common among student loan borrowers, and many struggle to meet their debt obligations.

Commonwealth, a nonprofit organization that promotes financial security, surveyed more than 600 student loan holders with incomes between $30,000 and $75,000. Although 90% of respondents had at least one full-time job, 69% had difficulty paying their loans. Another troubling result was that 72% of respondents said paying their student loans made it difficult to contribute to their retirement plan, jeopardizing their financial security in their later years.

A study by the Employee Benefits Research Institute and JP Morgan Asset Management shows that there are numbers behind the impact of pension savings. The study examined 401(k)s over a three-year period, from 2016 to 2020. The researchers found that average retirement balances were lower for those who paid off student loans compared to those who did not make these payments. Among participants with five to 12 years of tenure, the average 401(k) balance for those who paid off a student loan was about $86,000, compared to almost $108,000 for those who did not.

The need to overhaul the system for financing students’ and families’ education is compelling, but reform is elusive. Meanwhile, more and more employers are stepping in with workplace benefits that support employees with student loans.

Recent legislation helps. The Secure Act 2.0 allows employers to treat an employee’s federal student loans as contributions toward retirement savings. Employees may receive matching contributions from their employers into their employer-sponsored retirement savings plan to pay for loans. They receive the match without reducing their take-home pay. The CARES Act allows employers to offer up to $5,250 in federal student loan repayment benefits to employees tax-free through the end of 2025.

Hopefully, the solutions offered by employers expand in the coming years, and lawmakers do not allow the instant repayment student loan program to expire. I feel like these are popular benefits.

Fall is open enrollment season where employees can change or add benefits for the following year. Employees with student loans should check to see if current and prospective employers offer benefits related to student loan repayment. Employers that do this will become increasingly important for attracting and retaining talent.