Balancing future and past: How can you save for retirement while making student loan payments?
New allows employers to match student loan payments with retirement contributions, offering relief to borrowers juggling loan repayments & retirement savings.
As the deadline to resume federal student loan payments looms, a recent federal decision could provide some financial relief for borrowers. Starting next year, a law will enable employers to match student loan payments with contributions to retirement plans, offering a unique solution to ease the financial strain many borrowers are expected to face.
Juggling loans and retirement: Balancing future and past
With the end of the unprecedented three-year hiatus on monthly student loan payments, borrowers are facing a tough financial dilemma. The potential combination of inflation, other debts with higher interest rates, and the uncertain economic landscape might force borrowers to prioritize loan repayments over saving for retirement.
The new law aims to bridge this gap by allowing employers to match employees' student loan payments with contributions to their retirement plans. This means that as borrowers work on paying off their student debt, their employers will simultaneously contribute to their retirement accounts. This innovative approach could help borrowers manage both their immediate financial obligations and long-term retirement goals.
For many Americans coping with student loan debt, saving for retirement has taken a back seat. However, this law could be a game-changer. Laurel Taylor, CEO and founder of Candidly, a fintech company, predicts that the student loan retirement match will become the "new normal" for employers.
A student loan match would function much like a traditional retirement match but with a twist. Employers would match qualifying student loan payments rather than employees' pre-tax contributions to retirement savings. This means that even those who cannot currently afford retirement savings will see their savings grow while they pay off their student debt.
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The potential benefits are substantial. An employee who receives a dollar-for-dollar match on a $350 monthly student loan payment over a decade could amass up to $450,000 in additional retirement savings, based on estimates from Candidly. This could significantly bolster retirement funds, especially considering that the median total household retirement account for older adults is around $289,000.
A step toward financial balance
The new law may provide relief not only for those struggling to save for retirement but also for borrowers who can still contribute. By strategically managing the employer match for both student loan payments and traditional retirement savings, borrowers could optimize their financial strategy.
As the impending end of the loan payment hiatus approaches, many borrowers may feel overwhelmed. However, the innovative approach of matching student loan payments with retirement contributions offers a glimmer of hope for a more balanced financial future.
