How do you save for retirement while paying off thousands of dollars in student loan debt? It’s a challenge that many employees face and not just millennials.
About 35% of the 44 million student loan borrowers are 40 and older, and they owe about one-third of the $1.5 trillion in outstanding student loans, according to the Federal Reserve.
More than 50% of Americans workers who are paying off student loans say they’re sacrificing saving for retirement as a result, according to a 2016 Harris study cited by Empower Retirement in its announcement of an upcoming offering that gives employers the ability to help pay down their employees’ student debt.
Empower, the second largest administrator of of workplace retirement plans, is teaming up with CommonBond for Business, the fintech firm’s student loan benefits platform, to create a integrated retirement and debt management solution using technologies from both firms.
Fidelity Investments, the largest administrator of defined contribution plans, introduced a similar program last year.
“Student loan debt is one of the key financial barriers to saving for retirement,” said David Klein, the co-founder and CEO of CommonBond, in a statement. “Through our work with Empower, millions of people could have the ability to receive student loan benefits from their employer.”
Those employees will also have access to an evaluation of their existing loan portfolio that provides information about loan forgiveness programs and other options, including refinancing of their student loans. The Empower/CommonBond solution, which is expected to launch later this year, will also be available to IRA customers, according to Empower.
The integrated retirement and debt program solution is “mutually beneficial to workers and their employers,” said Edmund Murphy, Empower Retirement president and CEO.
Indeed, a 2017 survey from American Student Assistance (ASA), a nonprofit organization that helps eliminate financial barriers to education, found that 86% of respondents would commit to staying with their employer for five years if their employer helped them repay their student loans. The survey also found that student loan repayment was the third most desirable employment benefit after health insurance and a 401(k) match.
Despite these shared interests and the exploding level of student debt, just 4% of employers offer a student loan repayment program, according to a 2018 survey from the The Society for Human Resource Management (SHRM). But interest in such benefits is growing, according to a recent study by Guardian Insurance, as employers work to attract and retain younger workers.
In March the Travelers Cos. announced they would introduce a program that provides matching 401(k) contributions to employees who are paying down student debt even if those employees aren’t contributing to the 401(k) plan. A private letter IRS ruling allowing a similar program at Abbott Laboratories paved the way for more such programs.
On Capitol Hill, Sen. Ron Wyden, D-Ore., the ranking member of the Finance Committee, introduced the Retirement Parity for Student Loans Act in December. It would provide employees who are paying down student loan debt the same matching contribution they would have qualified for if they had made the contribution to their 401(k) plan.