Employer-Assisted Student Loan Repayment Gets a Boost Through SECURE 2.0

Student debt in the United States amounts to nearly $1.8 trillion,¹ affecting recent graduates as well as older adults who have either helped a child or grandchild with college expenses or who are still paying off their own student debt.

The dilemma facing many employees is whether to save for retirement or reduce their student loan debt. But starting in 2024, a new provision in the SECURE Act 2.0 might help them do both.

SECURE 2.0 allows employers to treat an employee’s qualifying student loan repayments as elective deferrals for the purposes of the plan’s matching contribution. By making payments on qualifying student loans, employees can also receive employer matching contributions that will go into their 401(k), 403(b), 457(b) or SIMPLE retirement savings plan.

Turning employer-assisted student loan repayment into a retirement benefit

With federal student loan repayments resuming now after a three-year pause, the timing could not be better for employers to help their employees adjust. Employers who have a younger employee demographic are likely to benefit the most from these initiatives.

Employers want to help employees be more retirement-ready and financially secure for many reasons, not the least of which is ensuring wellbeing and productivity. But doing so is also key to recruiting and retention, and the qualified match can be a powerful tool to attract young employees with student debt.

One advantage of this new benefit is the flexibility it affords employers to allocate their benefit dollars where they will be most relevant, effective and appreciated by employees.

There are hurdles, including administrative time and cost (especially at the outset of the program). Employers will also need to ensure they are meeting compliance requirements, fiduciary liabilities and verification standards in which employees who are enrolled in the program are making student loan repayments.

One way to address these logistical concerns is to outsource certain functions to third-party vendors. These tasks can include making amendments to the retirement plan adoption agreement, coordinating with the plan recordkeeper and revising payroll programming to enable greater optionality.

Alternative solutions

SECURE 2.0 provides an important opportunity for employers to address student debt reduction and retirement preparedness. However, there are ways for employers to help outside of their formal retirement plan.

One way is a stand-alone student debt relief benefit targeted toward student loan repayment. That approach avoids complications regarding defined contribution plan compliance or fiduciary concerns. HUB FinPath is another tool for employers to help educate employees on student loan repayment options.

Whether addressing these issues through the new SECURE 2.0 retirement plan provisions or separately, consider using external expertise to help relieve the difficulty that accompanies the implementation of a new benefits program.

HUB Retirement and Private Wealth offers institutional and retirement services to for-profit and not-for-profit organizations and customized private wealth management services to individuals and families. HUB Retirement and Private Wealth employees are registered representatives of and offer securities and advisory services through various broker dealers and registered investment advisers, which may or may not be affiliated with HUB International. Insurance services are offered through HUB International, an affiliate.

¹Education Data Initiative, “Student Loan Debt Statistics,” July 17, 2023.