A Student Loan Repayment Benefit with a Twist

As employees repay college loans, employers make 401(k) contributions for them

Stephen Miller, CEBS By Stephen Miller, CEBS April 1, 2016

The class of 2015 graduated with $35,051 in student debt on average, and the need for younger workers to repay their student loans is taking a toll on their ability to contribute to 401(k) or similar retirement plans. That’s significant, because saving early in adulthood increases the growth and compounding of investments over time, which dramatically improves the chances that today’s recent graduates will be prepared for retirement decades from now.

Trying to make up for lost savings in later years can prove difficult, requiring a much larger percentage of earnings to be contributed at a time when workers may be supporting families or caring for elderly parents.

One employer response to the student-debt problem that has received a good bit of media attention is offering a student loan repayment benefit. But there’s a new twist on that concept, and its backers say it’s a more direct pathway to increasing younger workers’ retirement savings. This week Prudential Retirement, a provider of 401(k) plan administration services, announced it has partnered with Student Loan Genius, a firm that facilitates loan repayment options, to offer the startup’s new 401(k) contribution feature. The idea is to help employees build up their retirement savings while they pay off their student loans.

“As student loan debt grows, workers are having to choose between paying off their student loans or prioritizing other important financial goals,” said Jamie McInnes, senior vice president and head of total retirement solutions for Prudential Retirement. “Our research tells us many workers will choose to pay down debt rather than save for retirement.”

401(k) Dollars as Loans Repaid

The benefit that McInnes sees as being part of the solution works this way: Employees who make student loan payments receive a pretax contribution to their retirement account from their employer based on that student loan payment, whether or not they contribute to their 401(k) plan or receive matching contributions. The employer contribution—paid as a flat dollar amount, as a percentage of the student loan payment or as a percentage of the employee’s compensation—can be offered annually, monthly or for each payroll period. For example, an employer could offer a $75 monthly contribution to an employee who pays a $400 loan repayment each month.

It’s too soon to predict whether this approach will catch on as an alternative to employers directly helping to repay student loans, but it highlights growing concerns over the debt burden—and savings challanges—confronting the Millennial workers that companies want to attract and retain.

“An employer that is proactively helping [employees] make student loan payment a focus of their financial planning is definitely one that will appeal to Millennials,” commented Emily Miethner, CEO of FindSpark, a career-networking site for young professionals.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow me on Twitter.

Related SHRM Articles

A 401(k) Twist on Student-Loan Aid, SHRM Online Benefits, July 2018

Easing the Student Loan Debt Burden? Points to Consider, SHRM Online Benefits, January 2016

Boosting Younger Workers’ Financial Fitness, SHRM Online Benefits, September 2015



Hire the best HR talent or advance your own career.

Discover what’s trending in HR

Search and download FREE white papers from industry experts.

Search and download FREE white papers from industry experts.



HR Daily Newsletter

News, trends and analysis, as well as breaking news alerts, to help HR professionals do their jobs better each business day.