Can student debt relief fix the repayment vs. retirement rub?

By: Danielle Gladstone, Head of Participant Engagement

By the end of 2022, student debt holders may benefit from two policy strides: the Biden administration’s student debt relief program, announced in August, and Section 111 of SECURE 2.0; the bill is expected to be passed by the Senate before year’s end. While borrowers’ debt burdens may be lessened, the impact on retirement savings remains unknown. Here we will explore the 3 strategies for employers to use in supporting employee retirement readiness in light of student debt relief.

Borrowers’ burden

US employees of all ages have been grappling with a major obstacle to achieving retirement readiness: student loan debt. In 2021, the student loan debt total skyrocketed to $1.6 trillion across more than 45 million borrowers, putting many workers behind on their financial goals and, in the worst cases, at risk of defaulting.i

For the class of 2021, student loan debt at graduation was an estimated $31,100, with an average monthly payment of $391.ii For many young people, the pressing need to pay student loans causes them to delay or forego saving for retirement. As they direct their savings dollars toward student loan payments, they miss out on the potential compounding benefits of saving early, as well as any employer matching funds.

Meanwhile, many older employees dip into their retirement savings to pay for a child’s tuition, or they reduce or stop their 401(k) contributions to pay off (grand)children’s student loans.

Burdensome student loans have also presented challenges for employers, as employees struggling to balance their financial priorities can succumb to significant stress and health problems, conditions that can trigger low productivity and absenteeism.iii In addition, the effort to make timely student loan payments coupled with a failure to contribute to a company-sponsored 401(k) plan may delay retirement for many.

Policy and private sector progress

As student debt volume and concern increased, US Senators Ron Wyden and Jeff Merkley proposed student debt relief plans in 2017 and 2018, respectively. Wyden’s bipartisan Streamlining Income-driven, Manageable Payments on Loans for Education or SIMPLE Act was aimed at helping vulnerable graduates avoid defaulting on their student loans through income-driven repayment plans.iv The following year, Merkley introduced a similar proposal aimed at creating easy access to affordable, income-based repayment plans for federal student loan borrowers.v

Though neither were enacted, together they kept a spotlight on the student debt issue, which is now addressed in section 111 of SECURE 2.0.

Focused on retirement readiness, SECURE 2.0 furthers the work of the 2019 SECURE Act, which extended retirement plan access, increased savings contributions, expanded distribution and spending options and helped boost financial literacy. Section 111 acknowledges the friction between debt repayment and retirement savings and in response treats “qualified student loan payments” as an employee deferral. This means that once the bill is enacted, an employer can make matching 401(k), 403(b) or SIMPLE IRA contributions based on an employee’s qualified student loan payments for plan years beginning after December 31,

If this construct sounds familiar, it is. In 2018, the IRS approved a similar plan, Private Letter Ruling (PLR) 201833012, allowing employees making student loan payments to receive employer 401(k) matching contributions, as long as their loan payments equalled the match threshold.vii As with section 111, the approach aimed at accomplishing two goals at once: Workers pay off student debt and, with the help of the employer, grow their retirement savings. Abbott Labs was a notable early adopter of PLR, but the expectation is that the louder legislative decision delivered through SECURE 2.0 will inspire more plan sponsors to add loan repayment options to their defined contribution plans.

Another approach to boosting repayment is to lessen debt. The Biden administrations’ loan forgiveness program, announced in August 2022, does just that by delivering up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education, and up to $10,000 in debt cancellation to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 ($250,000 for married couples). To ensure a smooth transition to repayment and prevent unnecessary defaults, the pause on federal student loan repayment, which began in March 2020 per the COVID-crisis-response CARES Act, will be extended one final time through December 31, 2022. Borrowers should expect to resume payment in January 2023.viii

Finally, on the private market side, US venture and private equity investments in startups tackling student debt grew nearly 10% between 2019 and 2020, despite the pandemic. Investors funded a range of solutions, from debt marketplaces and scholarship search aggregation, to employer-student loan assistance, to income-sharing agreements – highlighting the imminent need and suggesting equally forthcoming solutions.ix

Post-COVID era of student debt and the workplace

The coming year marks a new chapter for student debt. For borrowers, post-COVID payments resume; while the burden may be reduced, the saving habit may have also atrophied. For employers, the opportunity – or obligation – to balance retirement readiness with student debt management falls into the category of competitive advantage, as organizations continue to vie for top talent against the backdrop of the Great Resignation.

Beyond program costs, a paternalistic approach to financial benefits goes a long way with millennials in particular, with 56% admitting they feel more loyal to their employer if the employer demonstrates care about their financial well-being.x This demographic, born between 1981 and 1996, is particularly important to employers’ student debt conversation for two reasons: 1) these borrowers hold a bigger percentage of total student debt (28%)xi than any other age cohort and 2) of the five generations currently in the workplace, millennials represent the majority (35%).xii

Between proposed legislation and technology solutions, plan sponsors and employees may soon have access to a number of tools to help address student debt. In the meantime, plan sponsors can take immediate steps to help employees get out from under the strain of student loan debt. Here are three ideas employers can implement now to empower employees who are struggling with debt:

1. Offer educational seminars and one-on-one financial coaching.

Many younger workers have borrowed without understanding the implications of doing so, unwittingly putting their financial and emotional wellbeing at risk. Likewise, older workers’ retirement savings may be compromised as they borrow or intend to borrow for college-bound children. Targeted education and counseling can be beneficial for employees overwhelmed by student debt. A personalized approach like one-on-one financial coaching can be effective in helping employees sort out competing financial priorities and improve their overall wellness in a private setting.

“It not only ties into student debt, but in financial well-being, which was a focus of corporate America before the pandemic,” said Michael Barry, head of workplace solutions and managing director at UBS. “Due to the pandemic, there is heightened interest, and human resources departments are more action-oriented to drive these solutions.”xiii

Millennials value wellness programs in the workplace as much as, if not more than, their generational counterparts.xiv Since they engage well with digital resources, an educational webinar could appeal to these workers who want the convenience of gaining insight from the comfort of their desks. Make it interactive to instill a sense of community – participants will see that they’re not alone in the struggle. Have a fellow employee who successfully paid off their student loans talk about their experience and share tactics for managing debt while contributing to retirement.

2. Run a savings campaign. Many employees underestimate their ability to save.

Sometimes all they need is a nudge. By simply reinforcing plan features such as the company match or automatic escalation, employers can help plant the savings seed among reluctant, discouraged or lapsed employees. Highlight the benefits of saving and explain why increasing contributions even by small amounts can make a big difference. In addition, plan sponsors might consider using a strategic approach by targeting employees aged 35 and under who are most likely to be dealing with student debt. Make the campaign fun by modeling it after something relatable like a fitness bootcamp, where employees can track their progress and compare with peers.

3. Encourage peer-to-peer conversations.

Workers often trust friends and family for guidance on personal finance. For millennials in particular, friends and family outrank investment advisors and independent planners when it comes to seeking out financial advice and education.xv But not everyone is a financial expert. Plan sponsors can help aid these conversations by providing talking points or self-guided exercises that allow employees to learn from and support one another in financial goal-setting and decision-making.xvi For employees who are paying off student-loan debt, saving enough for retirement may be a goal they can’t reach without a boost. The help plan sponsors provide can make a significant difference in workers’ lives, resulting in less stress, greater financial health and better productivity in the workplace.

Originally Posted September 27th, 2022, State Street Global Advisors




i The White House, “FACT SHEET: President Biden Announces Student Loan Relief for Borrowers Who Need It Most,” August 24, 2022

ii The Education Data Initiative, “Average Student Loan Debt by Year,” January 19, 2022

iii Financial Stress and Absenteeism: Empirically. Derived Model Kim, Jinhee; Garman, E Thomas. Journal of Financial Counseling and Planning; Columbus Vol. 14, Iss. 1, (2003): 31-42.

iv U.S. Sen. Ron Wyden’s Office, press release: “Wyden, Bonamici Announce Bipartisan Effort to Prevent Student Loan Defaults,” August 2017.

v U.S. Sen. Jeff Merkley’s Office, press release: “Merkley, Senate Democrats introduce legislation to ensure affordable student loans for every borrower,” October 2018.

vi Forbes, “How Paying Off Your Student Loans Could Increase Your Retirement Benefits,” April 7, 2022.

vii SHRM, “IRS Allows 401(k) Match for Student Loan Repayments,” August 22, 2018.

viii The White House, “FACT SHEET: President Biden Announces Student Loan Relief for Borrowers Who Need It Most,” August 24, 2022

ix Crunchbase, “These Startups Want to Help Students Better Manage Their School Debt,“ April 1, 2021.

x PwC, “Employee Financial Wellness Survey,” May 2018 [p. 9].

xi The Education Data Initiative, “Average Student Loan Debt by Year,” January 19, 2022.

xii Pew Research Center, “Millennials are the Largest Generation in the U.S. Labor Force,” April 11, 2018.

xiii Crunchbase, “These Startups Want to Help Students Better Manage Their School Debt,“ April 1, 2021.

xiv [n viii] PwC [p. 9-10].

xv Ibid.

xvi Consumer Financial Protection Bureau, “Financial Wellness at Work,” August 2014.


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