How Student-Loan Borrowers Can Boost Retirement Savings With New Law

• The new law will allow employers to match student loan borrowers’ payments with 401(k) contributions.
• This is part of President Joe Biden’s “Secure 2.0” law, which goes into effect this month.
• This allows borrowers to increase their retirement savings while paying down debt.

Thanks to legislation currently in place, some student loan borrowers may soon find themselves saving more for retirement.

At the end of 2022, President Joe Biden signed the “Secure 2.0” bill. This is a retirement-related bill with new provisions added following its initial implementation in 2019.

The package included a policy allowing employers to match employee student loan payments. Through 401(k) contributions. So if a borrower is paying $200 a month on their student loans, their employer can make a contribution. The $200 will be added to the retirement account even if the borrower does not actively choose to do so.

Tamara Telesco, director of wealth planning at the Teachers Insurance and Annuity Association of America (TIAA), previously spoke to Business Insider about the law.

“So, for example, if you’re trying to attract young people who have a lot of student debt, incorporating this into your plan could be very attractive,” she says.

Employers determine annually whether an employee has made qualifying student loan payments to benefit from a 401(k) match.

The provision takes effect just months after federal student loan payments resume after more than three years of suspension. Interest began accruing on the borrower’s balance in September, and bills began to fall due in October. Due to the unprecedented nature of the transition, both borrowers and servicers are struggling to cope with the changes.

The Department of Education even released new data in December revealing that nearly 9 million student loan borrowers were behind on their October payments, compared to 22 million who started repayments in the fall. This corresponds to approximately 40% of all borrowers.

Borrowers who fall behind on their payments will have a 12-month “increase” period during which the Department of Education will not proactively report delinquencies to credit agencies, while new retirement benefits will increase savings for some borrowers. may provide an incentive to pay for

Lawmakers also introduced additional legislation to help borrowers finance their retirement on their own. The $1.7 trillion spending bill Congress passed at the end of 2022 included changes to how Americans save for retirement, including raising the age to start withdrawing money from accounts to 75.

Additionally, Sen. Ron Wyden and Sen. Mike Crapo introduced legislation to help borrowers save for retirement in 2022, and Sen. Wyden said at the time that, “After decades of hard work, Americans have the dignity and dignity they deserve.” “I have a right to a certain retirement.”

“Under our reforms, more workers will have access to retirement resources and receive meaningful federal retirement contributions each year,” he said.