Your Company Could Match Your Student Loan Payments to Your 401(k). Here’s How That Will Work

Student loan borrowers may be able to take advantage of a new workplace benefit that would allow employers to contribute towards their 401(k) while they pay off their student loans.

The new student debt provision is part of the Securing a Strong Retirement (Secure) 2.0 Act, which passed in 2022, though some of its retirement-related provisions only went into effect this January. Under this legislation, if an employee makes a student loan payment, employers can match that contribution towards an employee’s retirement plan, even if that worker is not able to make any personal contributions to their 401(k). 

“This is great news for both employees as well as employers, as employers can continue to benefit from retirement tax advantages, while providing their employees relief in paying down student debt and saving for the future,” says Jesse Moore, head of Student Debt at Fidelity Investments.

The new 401(k) benefit could prove beneficial for many; nearly 85% of Americans say student loan debt impacts their ability to save for retirement. Companies, however, are not required to implement this provision by law, so employers must elect to offer it to their workers.

How does this work? 

The new benefit functions similarly to a regular 401(k) match, except borrowers have to be making payments towards their student loans, but do not need to be making any contributions towards their retirement plan.

“Employers can select which retirement plan is eligible to receive the benefit. From there, all employees eligible in that plan would become eligible for the student debt retirement match, regardless of whether they hold federal or private student loans,” Moore says. 

The new benefit would emulate the company’s existing retirement plan. For instance, a company offering a 5% match on retirement plan contributions would offer the same 5% match for an employee that sets aside part of their paycheck towards their student loans. Employers would have to certify that such payments are being made.

While there are no current statistics as to how many companies are offering this benefit, Moore says Fidelity has seen a “5x increase in demand for both the student debt retirement benefit as well as a direct payment benefit where employers directly help employees pay their student loans.” 

What long-term benefits could be seen? 

The nationwide student loan debt portfolio amounts to more than $1.7 trillion, affecting more than 40 million borrowers, according to the Education Data Initiative. Borrowers hoped for relief under the Biden Administration’s student loan forgiveness plan, but it was turned down by the Supreme Court last July. While the Department of Education has rolled out several programs since, and is pursuing broader avenues for relief, millions of borrowers have been struggling to pay since student loan repayment resumed in October 2023. 

While the 401(k) benefit is new, at least one company has been offering a similar benefit since 2018. Abbott, a global health technology company, received special permission from the IRS to implement their own version of this special 401(k) contribution for student loan borrowers, known as Freedom 2 Save. At Abbott, employees have to put at least 2% of their pay towards student loans to receive a 5% company contribution to their 401(k) annually. Since then, more than 2,800 employees have enrolled in the program. 

“[It] has been a difference-maker for us,” says Mary Moreland, Executive Vice President, Human Resources at Abbott. “Some employees have even paid down all their student debt — as much as $60,000 over a few years — while still saving for retirement.” 

Moreland says that the program has been especially beneficial for employees with multiple degrees. 

“We hear from the employees themselves about just how important this program is to them,” Moreland says. “Nick, an engineer with us in the Chicago suburbs, told us he considers Freedom 2 Save particularly important for employees with advanced degrees like a Ph.D. These individuals start their professional careers later than most and may be in their early 30s before they even begin thinking about saving for the future.”