A new law that went into effect this year could potentially assist many student loan borrowers in making strides toward their financial objectives.
A new legislation, known as the SECURE Act 2.0, was passed in December 2022 to encourage retirement savings.
This legislation provides companies with the flexibility to make adjustments to their 401(k) match. In certain cases, employers can consider an employee’s student loan payment as a contribution to their 401(k), regardless of whether the employee decides to contribute to their 401(k) or not.
According to Section 110 of the act, the benefit applies to “qualified student loan payments.” Any debt that the employee incurs specifically to pay for acceptable higher education expenses falls under the definition of these payments.
Chipotle and engineering consultancy Kimley-Horn are among the employers that have recently implemented this benefit. In 2018, Abbott Laboratories introduced the Freedom 2 Save program, which received an IRS exception to operate.
Employers may need some time to implement it. Additional companies, such as Adidas, have included student loan payment stipends in their benefits plans as a means of enticing skilled individuals.
Student Loan Borrowers Eligible for 401(k)
The legislation sheds light on the financial difficulties that college-educated workers often encounter when starting their careers. According to the Education Data Initiative, a nonprofit think tank, the cost of college has seen a significant increase, more than doubling in the 21st century alone.
Nevertheless, individuals with a college degree consistently earn higher salaries than those without. Research from the Social Security Administration reveals that individuals with a bachelor’s degree can expect to earn an additional $900,000 in their lifetime for men and $630,000 for women.
Graduate degree holders can expect even greater earning potential, with an additional $1.5 million and $1.1 million in lifetime earnings, respectively. Many borrowers are currently focused on federal student loan payments, as repayment resumed last October following a pause of three and a half years due to the pandemic.
Many workers choose to focus on paying down loans rather than contributing to retirement plans, potentially missing out on the benefits of compound interest during their prime years.