Student loan payments are getting in the way of building retirement savings for some, and in particular those Americans with higher salaries, according to a recent study.

Americans with student loan payments contribute at a lower rate and have smaller overall balances in their 401(k) accounts than those earning the same without student loan debt, a report from the Employee Benefit Research Institute (EBRI) study said. 

The savings disparity is most pronounced among those who earn $55,000 or more a year. The report said that the average contribution rate among these higher earners with student loan debt was 6.1% compared to the 7.3% saving rate of those who earned the same but did not have a student loan payment.

Americans earning less than $55,000 with student loans also contributed to their retirement savings at a lower rate of 5.3% compared to the 5.7% rate paid by those earning the same without the extra debt.

One-fifth of the study sample’s participants had student loan payments in at least one of the three years of this study, while 12.1% had them for the duration of the study. When they could stop making student loan payments, 31.6% of employees increased their 401(k) contributions, the study said.

If you’re trying to save for retirement, high-interest debt may be standing in the way. You can consider paying it down with a personal loan at a lower interest rate. You can visit Credible to get your personalized rate in minutes without affecting your credit score.

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Secure 2.0 Act could help Americans

The Secure 2.0 Act of 2022 introduced several new optional provisions at the start of 2024 to enable plan sponsors to help improve their retirement preparedness. Among them is section 110, which allows employers to match an employee’s qualified student loan debt payment with a corresponding contribution to the employee’s retirement plan account – whether that’s a 401(k), 403(b), SIMPLE IRA or for government employees, a 457(b) plan. 

The Act is designed to help Americans save more for retirement and was passed by Congress and signed into law by President Joe Biden last year.  

“Student debt is a barrier that prevents so many Americans from participating in important life milestones – particularly saving for retirement,” Jesse Moore, senior vice president head of Student Debt at Fidelity Investments, said in a statement. “The introduction of a retirement-focused student debt benefit is a game-changing step forward for the benefits industry that will help millions on their path toward financial wellness and mobility.”

The provision would help employees with student loans, who, because of these payments, can’t contribute at the full match level or at all to their 401(k) plans to receive at least the matching contributions to allow them to build up assets for retirement. 

If student loans are preventing you from saving as much as you can for retirement, you could consider consolidating your private loans to a lower interest rate. Visit Credible to speak with a student loan refinance expert and see if this option is right for you. 

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Borrowers struggle with repayments

Student loan payments resumed in October following a 42-month payment pause. While there are several avenues for relief, millions of borrowers have missed at least one payment. Some borrowers are refusing to pay in the hopes it will pressure the government to cancel their outstanding debt, a recent Intelligent.com survey said. 

Over one-third (36%) of borrowers who have yet to make any payment said they planned to resume as soon as possible, with the same number saying they are unsure when they’ll resume payments. Another 12% of these borrowers said they are using the Biden administration’s ‘on-ramp’ to student loan repayment, in which borrowers won’t face penalties like having missed payments reported to credit bureaus until September 2024. 

While most borrowers have missed payments because they can’t afford them, 9% have boycotted payments to pressure the government into canceling student debt. Most of these borrowers hope their efforts will bring attention to the student loan debt conversation.

If you’re having trouble making payments on your private student loans, you won’t benefit from federal relief. You could consider refinancing your loans for a lower interest rate to lower your monthly payments. Visit Credible to get your personalized rate in minutes.

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Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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