Arlington, VA – Starting this year, a new policy allows employers to match employees’ student loan repayments as 401(k) contributions, a change experts believe could have a significant impact on individuals struggling with student loan debt, particularly Black women. This policy, enacted under Section 110 of the SECURE Act 2.0, allows an employer to make matching contributions with respect to ‘qualified student loan payments’ under a 401(k) plan, 403(b) plan, or SIMPLE IRA.
The policy comes at a time when many Americans, especially women, are burdened with student loan debt. According to the Education Data Initiative, up to 61.4% of women with bachelor’s degrees have federal student loans, compared to 52.2% of men with the same level of education. Black women in particular carry the highest amount of debt, averaging $29,051 compared to other groups of women. This disproportionate burden, coupled with the existing wage gap, further exacerbates the disparity in retirement contributions, savings, and confidence between different demographics.
Sen. Benjamin L. Cardin, a Maryland Democrat and member of the Senate Finance Committee, emphasizes the importance of this new provision in aiding those who are unable to take full advantage of available matching contributions for retirement plans due to their student debt. Given that only 31% of non-retired individuals felt that their retirement savings were on track in 2022, this policy is seen as a potential solution to help individuals prioritize saving for retirement despite their student debt.
Financial advisers point out that debt plays a significant role in individuals’ ability to save for retirement. For example, Raya Reaves, a financial coach, notes that a significant portion of her clients’ income goes towards debt payments, limiting their ability to save, invest, or contribute to retirement plans. With this new policy, employees will have the opportunity to redirect the funds they would have used for student loan payments toward their retirement, potentially improving their long-term financial security.
The expansion of 401(k) matching contributions to include student loan repayments presents an opportunity to address the racial wealth gap. While the policy has the potential to benefit many employees, it is voluntary and its impact is contingent upon employers’ decisions and values. Therefore, advocates emphasize the importance of employees engaging in conversations with their colleagues to advocate for the adoption of this policy at their workplace.
Overall, the new policy represents a step towards greater equity and financial security, particularly for individuals struggling with student loan debt, and has the potential to address some of the disparities in retirement savings among different demographic groups. As the implementation of this policy unfolds, it remains to be seen how widely it will be adopted and what impact it will have on individuals’ long-term financial well-being.