Some student-loan borrowers can now get a retirement savings boost if they make payments on their debt
- A new law will allow employers to match student-loan borrowers' payments with 401(k) contributions.
- It's part of a provision in President Joe Biden's "Secure 2.0" law going into effect this month.
Some student-loan borrowers might soon see their retirement savings grow, thanks to a law now in effect.
At the end of 2022, President Joe Biden signed into law the "Secure 2.0" bill, a piece of retirement legislation with new provisions following its original implementation in 2019.
Included in the package was a policy that allows employers to match their workers' student-loan payments with 401(k) contributions. So, if a borrower is making $200 monthly payments on their student loans, their employer can contribute $200 to their retirement account — even if the borrower did not actively opt to do so themselves.
Tamara Telesko, Director of Wealth Planning at the Teachers Insurance and Annuity Association of America (TIAA), previously spoke with Business Insider about the law.
"So if you're trying to attract younger people that have a lot of student loan debt, for example, having this in your plan may be very attractive," she said.
Employers will determine annually if their employees have made qualifying student-loan payments to benefit from the 401(k) match.
This provision is going into effect just months after federal student-loan payments resumed after an over three-year pause. Interest began accruing on borrowers' balances in September, and bills started becoming due in October. Due to the unprecedented nature of the transition, both borrowers and servicers have been struggling to manage the change.
The Education Department even released new data in December that found nearly 9 million student-loan borrowers missed their October payments, which is about 40% of the 22 million borrowers who entered repayment in the fall.
While borrowers who miss payments have a 12-month "on-ramp" period during which the Education Department will not actively report their missed payments to credit agencies, the new retirement benefit might incentivize some borrowers to make payments to boost their savings.
Lawmakers have also introduced additional legislation to help borrowers put money toward retirement on their own. The $1.7 trillion spending bill Congress passed at the end of 2022 included changes to the way Americans save for retirement, including raising the age people are required to start taking money from their accounts to 75.
And Sens. Ron Wyden and Mike Crapo introduced a bill to help borrowers save for retirement in 2022, with Wyden saying at the time that "Americans deserve dignified retirements after decades of hard work."
"Under our reforms, many more workers would access resources for retirement and see meaningful federal retirement contributions year after year," he said.