According to new data from Fidelity, a significant number of student loan borrowers took advantage of the pandemic payment pause to strengthen their retirement funds.
During the student loan forbearance program initiated in March 2020, Fidelity discovered that the percentage of students allocating at least 5% of their income to their 401(k) retirement plans increased from 63% to 72%. Simultaneously, the proportion of borrowers with a loan against their 401(k) decreased from 19% to 13%.
Jesse Moore, Senior Vice President and Head of Student Debt at Fidelity Investments, emphasized the impact of student debt on individuals’ ability to save, stating, “Student debt is a burden and barrier to saving for so many.” Moore further explained that this payment pause provided an opportunity for borrowers to shift their focus towards important life and financial goals. As a result, individuals were able to purchase homes, start families, and notably, prioritize saving for retirement.
It is evident that the pandemic pause has been instrumental in encouraging student loan borrowers to redirect their financial efforts towards securing a prosperous future.
Student Loan Borrowers Prepare for Resumed Payments
Soon, the country’s roughly 44 million federal student loan borrowers will have to squeeze loan payments into their budgets, many for the first time in more than three years. After being extended multiple times, the payment pause is set to lift this fall.
Interest Begins to Accrue
Starting from September 1st, interest will begin accruing on these loans and borrowers will be expected to make payments starting in October, according to the U.S. Department of Education.
Steep Monthly Payments
The SAVE Plan
To address this situation, the Biden administration has recently launched the SAVE plan. This new income-driven repayment program aims to lower borrowers’ monthly payments, providing some relief. The introduction of this plan follows the U.S. Supreme Court’s rejection of the administration’s proposal to forgive up to $20,000 in federal loans per qualifying borrower.
Helping Students Manage Debt and Retirement
Starting in 2024, the Secure 2.0 law will provide an added benefit for student debtholders who are struggling to balance their retirement savings with their student loans. Employers will now have the option to match workers’ student loan payments with a contribution to their retirement plan. This means that even if individuals are unable to contribute to their 401(k), they can still qualify for their employer match.
This initiative aims to alleviate the financial burden faced by students who are burdened with both student debt and the need to save for retirement. By allowing employers to match their student loan payments, individuals can make progress on paying off their loans while also securing their financial future.
Under the Secure 2.0 law, employees no longer have to choose between addressing their debt or saving for retirement. Thanks to this new provision, individuals can receive employer contributions towards their retirement plan while actively working towards reducing their student loan balance.
By taking advantage of this opportunity, students can better manage their finances, reduce their debt, and build towards a more secure retirement. With the option to receive an employer match on their student loan payments, individuals can make progress on multiple financial fronts simultaneously.
If you are someone struggling with student debt and the pressure to save for retirement, this new law could provide significant relief. It’s important to explore this option with your employer and take advantage of the benefits offered by the Secure 2.0 law.
Remember, your financial well-being matters, and with the new provisions coming into effect next year, it’s never too early to start planning for a debt-free future and a comfortable retirement.