More employer benefits supporting 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, with some 92% in federal loans across 43 million borrowers. The student loan debt burden has a disproportionately negative impact on women and people of color. Surveys routinely show financial stress is common among student loan borrowers, and many struggle to meet their debt obligations.

Commonwealth, a nonprofit that promotes financial security, surveyed more than 600 student-loan holders with incomes between $30,000 and $75,000. Even though 90% of respondents were working at least one full-time job, 69% were having difficulty making their loan payments. Another disturbing result was 72% of respondents said paying their student loans made it difficult to contribute to their retirement plan, putting their financial security at risk in their later years.

A study by the Employee Benefits Research Institute and J.P. Morgan Asset Management puts some numbers behind the retirement savings impact. The study examined 401(k)s during a three-year period, 2016 to 2020. The researchers found average retirement balances were lower for those paying off student loans compared with those who weren’t making these payments. Among participants with tenures of five to 12 years, the average 401(k) balance for those making student loan payments was about $86,000 compared with nearly $108,000 for those who weren’t.

The need for overhauling the system for how students and families finance college is compelling, yet reform is elusive. Meanwhile, growing numbers of 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 loan payments as retirement savings contributions. Employees can receive a matching contribution from their employer into their employer-sponsored retirement savings plan for making loan payments. They receive the match without lowering take home pay. The CARES Act lets employers offer up to $5,250 in federal student loan repayment benefits to employees tax-free through the end of 2025.

Hopefully, employer-provided solutions expand in coming years, and legislators don’t let the direct repayment student loan program expire. My sense is these are popular benefits.

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

Chris Farrell is senior economics contributor for “Marketplace” and a commentator for Minnesota Public Radio.