Could Student Loan Payments Derail Your Retirement Plans?
A new survey reveals millions of student loan borrowers fear resuming payments will disrupt their ability to save for retirement.
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The long, unexpected holiday is finally over for student loan borrowers, as they prepare to start paying student loans again. A new survey of employees and employers from Nationwide Insurance reveals difficult financial tradeoffs beginning to emerge, with a huge number of Americans planning to limit their retirement saving to cover resumed loan payments.
Student loan payments resume, force hard choices
The COVID-19 pandemic sparked seismic changes to Americans' financial lives, among them a protracted pause to student loan payments and interest accrual. The pause allowed borrowers to better handle the severe economic dislocation of the full blown pandemic in 2020 and 2021, and later the lingering inflation of 2022 and 2023.
After a few years of diverting student loan payment funds toward other financial purposes, like paying rising prices for food, gasoline, and rent, borrowers will now have to take a harder look at their spending.
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On September 27, the Nationwide Retirement Institute released the results of a nationwide, online survey of 1200 American workers and 600 retirement plan sponsors. The survey revealed that a broad swath of employees, from the youngest to the most seasoned, are feeling the financial heat from the resumption of payments.
More than 12% of employees ages 45 and up — a group representing up to 17 million Americans — currently hold student loan debt. 61% of them already report negative impacts to their financial stability and long-term planning. The kicker: A full 66% of this cohort agree that repayments will significantly affect their ability to save for retirement.
Employees are considering a variety of moves to adjust to loan payments once again taking a chunk of their paychecks:
- 18% of survey respondents have already adjusted their retirement plan contributions to help keep up with student loans, and another 29% plan to do so.
- 49% are reevaluating their previously-established retirement goals.
- 59% are exploring additional income and side gigs to keep up with their loans, while maintaining their retirement savings contributions.
How employers can help
Employees don't have to handle the increased burden of student loan payments on their own. One solution posited by the Nationwide survey is the concept of an employer match, which garnered 85% support among respondents aged 45+ with student loan debt.
The SECURE 2.0 Act allows your boss to set up matching retirement plan contributions based on the amount of your student debt repayments. Regarding employer match programs, President of Nationwide Retirement Solutions Eric Stevenson says “Between student loans, interest rate increases and inflation, employees have a lot to navigate when planning for retirement. There is a strong business imperative for employers to help.”
“Between student loans...and inflation, employees have a lot to navigate when planning for retirement. There is a strong business imperative for employers to help.”
Eric Stevenson of Nationwide
On top of an employer match, there's another way businesses can help their employees handle student loan burdens. Employer educational assistance programs enable employers to subsidize employee education expenses, including books, equipment, fees, tuition, and even the principal and interest on an employee's qualified educational loans.
An additional benefit of this approach for employees is that the IRS doesn’t consider the employer assistance as taxable income for the employee. Companies can provide up to $5,250 per year, tax-free, to their workers to offset their student loan payments. Educational assistance programs can cover student loan payments made between March 27, 2020 until December 31, 2025, under current law.
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