Pay the Piper & Get a Match

After a three-year break, student loan payments are set to resume; some employed borrowers could benefit from new regulations

Student loan repayments are set to resume in October. Payments were paused during the outset of the pandemic and then extended until the Supreme Court overruled the White House’s policy to cancel most of the debt.

Part of the inflationary pressure over the past few years was due in part to borrowers shifting their monthly loan payments to discretionary spending on goods, eating out, and vacations. Now, they will have to scale back on entertainment options to handle the debt burden again. This is no easy task. Once we are used to a certain lifestyle, it is very difficult to scale back. Those with student loans set to resume will be faced with tough decisions. This story from FiveThirtyEight explains how one couple made the decision to sell their house in order to manage their student debt.

While the extended moratorium on payments was a welcome reprieve for borrowers, the resumption of payments is going to hit hard. In addition to the resumed liability, the logistics of making a payment could have changed, or even be unknown to those that have not yet started to make loan payments. The Wall Street Journal recently published an article on how to prepare for renewed loan payments. Hopefully, borrowers will be able to financially adjust and resume making payments with as little impact as possible. We would not want the ‘Pied Piper’ to come calling.

One silver lining here is a new provision from the Secure 2.0 Act that was passed at the end of 2022. Section 110, of the bill calls for the “Treatment of student loan payments as elective deferrals for purposes of matching contributions.” This means that employees with student debt that make their monthly payment can have an employer “match” that amount (up to current plan limits) in a 401(k), 403(b), or SIMPLE IRA. Government workers with a 457(b) plan also would qualify. A summary of the provision states, “Section 110 is intended to assist employees who may not be able to save for retirement because they are overwhelmed with student debt, and thus are missing out on available matching contributions for retirement plans. Section 110 allows such employees to receive those matching contributions by reason of repaying their student loans.”

This new provision takes effect “for contributions made for plan years beginning after December 31, 2023.” For borrowers employed and covered by a plan that makes qualified matches, it makes sense to talk with your employer and/or plan administrator to reap the benefits of this new provision.

Pay the “piper” and get paid too.