(Bloomberg) — For James Bryant, balancing student loans with life and saving for retirement has been difficult.
His employer, Verizon Communications Inc. offers a 401(k) match, worth up to 6% of his salary. But between loans, living expenses and money he sends to his parents, the 37-year-old hasn't always saved enough to get the full match since he started in 2016.
“There were times I didn't take full advantage of the game,” said Bryant, a senior call center manager who graduated from Hartwick College in 2008 with about $75,000 in debt. “My parents probably didn't save as well as they should throughout their lives, and I worry that I'm repeating the same cycle.”
Employees often have to choose between paying off student debt and saving for retirement. But with employers like Verizon now able to apply student loan payments toward 401(k) matches with Secure 2.0 ActBryant expects his save rate to improve, especially if he can pay down his debt more aggressively.
Borrowers' hopes for widespread student debt relief were largely dashed when the Supreme Court struck down President Joe Biden's one-time forgiveness program intended to address the $1.6 trillion borrowers owe in federal student loans. That debt has long been a burden for about 40 million Americans, many of whom save less for retirement than their peers without debt. And while companies have long offered tuition reimbursement programs for those who decide to go back to school, some are also recognizing that employees have already accumulated debt and the ways that is affecting their ability to save.
The request of employees for student loan support has been on the rise and can give employers a leg up on recruiting, said Tony Guadagni, director of human resources at Gartner Inc., an HR advisory group. But the benefit is not without its critics.
Verizon is among only 100 companies now offering a match through retirement plan provider Fidelity Investments, which launched a program to address benefits on Jan. 1 for its roughly 30,000 corporate customers. Dow Inc., News Corp., and Liberty Mutual Insurance Co. have also signed.
But overall, about 64% of companies don't plan to roll out an extended 401(k) match, citing costs as a major reason, according to a survey by the Plan Sponsors Council of America. Furthermore, a paper by the National Bureau of Economic Research, published in May, predicted that while such a benefit should help workers pay off their student loans sooner, it is likely to have a minimal effect on retirement savings. Even the most generous 401(k) match programs — like Verizon's dollar for dollar match — fall short of the standard 10% to 20% recommendation for how much to set aside for retirement.
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However, every little bit can help. For Christi Houchins, a vice president and RCA complaints manager at Synchrony Financial, the program came just in time.
Last year she decided to put her 401(k) contributions on hold so she and her husband could jointly tackle $180,000 in student loan debt after privately refinancing at a lower interest rate. But when Synchrony released its expanded 401(k) match earlier in the year, their efforts to get their balance back to $139,000—and ultimately, pay it off in full—accelerated.
“It felt like divine intervention when I saw that email,” she said. “I felt like, 'I'm going to stop for so many years toward retirement and I'm not going to be able to get the company match. What am I missing?'” The benefit, she says, “removed that decision, and I'm not going to miss it.”
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Meanwhile, many of the companies that plan to offer the benefit know that most of their workers won't sign up, simply because they don't need it. Some employees don't have student loans, while others may decide they have funds to contribute to their 401(k)s and pay off their loans.
Abbott Laboratories, which began offering an at-home student loan compliance program in 2018, said less than 5% of its workforce was enrolled in the benefit, called Freedom 2 Save, while roughly 92% of employees use the traditional program. 401(k) plan.
Mary Moreland, executive vice president of human resources, said that's not a sign of a flawed program, however. Those who use it are 19% more likely to stay with the company overall.
“Not everyone with a student loan will need to participate in a program like Freedom2Save, and that's okay,” Moreland said.
To contact the author of this story:
Ella Ceron in New York at (email protected)