Your 401(k) May Soon Be Your Ticket To Paying Down Your Student Loan Debt
If you’ve been putting off saving for retirement because you’re burdened with student loan debt, you’re not alone. According to a study conducted by the Center for Retirement Research at Boston College, college graduates with student loan debt save 50 percent less for retirement by age 30 than those without. Although retirement may feel like a million years away when you’re in your 20s, it’s still very important to save for those golden years while also paying down that debt — and now your 401(k) may be able to help.
On August 17, the Internal Revenue Service released a private letter ruling that may soon allow employers to use their 401(k) plans to help employees pay down their student loan debt. According to the letter, employees who participate in their employer’s 401(k) plan and are currently repaying their student loans may be eligible to receive student loan repayment nonelective contributions from their employer.
Basically, instead of an employer matching the employee’s 401(k) contributions and distributing the money into their retirement account, they would link that matching 401(k) contribution amount to the employee’s student loans outside of the retirement plan. According to MarketWatch, this new program would be virtually cost-neutral to the employer. Even better, if the employee doesn’t make full use of their employer’s matching contributions on the student loan repayments, they can apply the excess to their 401(k) contributions. That’s a serious win-win, which makes us wonder why this hasn’t been thought of sooner!
This news comes after student loan debt hit a new high of $1.5 trillion in 2018, with the average person having $36,314 in student loan debt in 2018, according to a study by MagnifyMoney by LendingTree. So many millennials are working hard to pay off their student loan debt fast, but it’s not always easy when trying to also build up that emergency fund and save for retirement.
Additionally, a couple of other outlets are taking action to help people pay off their student loans. On August 16, New York University announced that it will now cover full tuition costs for current and future medical students, while TruTV launched a new game show in July where contestants compete for the chance of a lifetime: to wipe out all of their student loan debt.
Regardless of whether the assistance comes from an employer, institution or game show, every little bit helps. These may be small steps for the student loan debt crisis, but they have giant impacts on the lives of college graduates who are just trying to thrive.