SECURE Act 2.0 Opens New Avenue for Paying Off Student Loan Debt in 2025

Student Loan Debt: A Growing Crisis

Student loan debt has become a critical issue for many American workers, with the nation's collective student debt load reaching approximately $1.73 trillion, according to Federal Reserve data. On average, borrowers pay between $200 and $299 monthly toward student loans. This financial burden often forces individuals to choose between paying off their education debt and saving for retirement, with nearly half of young adults reporting that student debt impacts their 401(k) contributions.

The consequences of delayed retirement savings can be severe. For instance, $10,000 contributed at age 25 could grow to more than $100,000 by age 65, assuming a 6% annual return. Waiting until age 35 to set aside that same amount would result in just $57,000 by retirement age. The new SECURE 2.0 provision aims to help workers avoid this difficult trade-off.

How the New Student Loan Match Works

Under the SECURE 2.0 Act, employers sponsoring 401(k), 403(b), governmental 457(b) plans, or SIMPLE IRAs can now make matching contributions based on employees' "qualified student loan payments" (QSLPs). Here's how it works:

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1. Employers can treat an employee's student loan payments as if they were 401(k) contributions for the purpose of matching.
2. The program is optional for employers and available for plan years starting after December 31, 2023.
3. Employees must be otherwise eligible to receive matching contributions on salary deferrals.
4. The amount of loan repayments that can be matched is generally limited to the annual salary deferral limit ($23,000 for 2024) minus any actual elective deferrals made by the employee.
5. The loans must have been obtained solely to pay for qualified higher education expenses of the employee, their spouse, or a dependent.
6. Employees must certify annually to their employer that they have made qualifying loan payments.

Benefits of The Student Loan Match for Employees and Employers

This new provision offers several advantages:

For Employees:

• Ability to pay down student debt while still receiving employer retirement contributions
• Potential to start building retirement savings earlier in their careers
• Reduced financial stress and improved overall financial wellness

For Employers:

• Attractive benefit to help recruit and retain talent, especially among younger workers
• Opportunity to improve employees' financial well-being and productivity
• Tax-deductible contributions, similar to traditional matching programs

Student Loan Match Implementation Challenges and Considerations

While the student loan matching provision offers significant benefits, there are some challenges to consider:

1. Administrative Complexity: Employers will need to work with plan recordkeepers and service providers to establish processes for implementing and tracking this new feature.
2. Employee Education: Companies will need to educate their workforce about this benefit and how to take advantage of it.
3. Verification Process: Employers must establish reasonable procedures for employees to claim these matching contributions and verify loan payments.
4. Cost Considerations: Employers may incur additional costs by making matching contributions for employees who previously weren't participating in the retirement plan.

Early Adoption and Future Outlook of The Student Loan Match

Some companies have already implemented similar programs. For example, Abbott launched a "Freedom 2 Save" program in 2018, which inspired the student loan provision in SECURE 2.0. Under this program, employees who apply at least 2% of their salary toward paying down student loans receive a 5% company contribution to their 401(k) annually. Over 2,800 Abbott employees have enrolled, receiving more than $7 million in total contributions to their 401(k)s.

As more employers adopt this benefit, it could have a significant impact on both student debt repayment and retirement savings rates among younger workers. A survey by Morning Consult found that 70% of young adults were very interested in a workplace benefits plan that offered 401(k) contributions tied to student loan payments. Moreover, over half indicated that such a benefit would significantly impact their decision when choosing between job offers.

The student loan matching provision of the SECURE 2.0 Act represents a novel approach to addressing two critical financial challenges facing many American workers: student debt and retirement savings. Our team of advisors at WHZ Strategic Wealth Advisors is available to help you navigate these new opportunities as part of a long-term, strategic financial plan, designed to provide you with “Absolute Confidence. Unwavering Partnership. For Life.” Schedule a  complimentary consultation  now or call us at (860) 928-2341. 

Authored by Vice President, Associate Financial Advisor, Michael Baum, CFP® RICP®. Securities and advisory services are offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. www.whzwealth.com.