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Secure Act 2.0 Has the Hidden Benefit of Helping Pay Down Student Loans

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It has not been a happy few weeks for federal student loan borrowers who hoped to get relief through the Biden administration’s loan forgiveness plan. Although the administration had hoped to begin cancelling debt as early as last month, the plan has been tangled up in the courts amid various lawsuits challenging its legality.

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As GOBankingRates recently reported, 26 million people have applied for debt relief, and 16 million borrowers have been approved. But court orders resulting from the suits are blocking the Education Department from discharging student loan debt and accepting additional applications.

However, there is one piece of legislation currently being considered in Congress that would provide another type of relief for student loan borrowers: the SECURE Act 2.0, a package of proposed changes designed to help Americans save more for retirement.

Included in the package is a measure that would let employers count employees’ student loan payments toward their retirement match, USA Today reported. For now, companies can only match employee contributions.

The change being considered would allow eligible student loan payments in lieu of employees making their own contributions to company retirement plans, according to Morgan Stanley. This would help increase their retirement savings while also reducing their student loan debt.

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As USA Today noted, college graduates with student loans accumulate 50% less retirement wealth by age 30 than those without debt, according to a 2018 study by the Center for Retirement Research at Boston College. 

The SECURE 2.0 Act — formally known as the Setting Every Community Up for Retirement Enhancement 2.0 Act — aims to build on the original SECURE act that passed in 2019. That bill revised existing rules around retirement saving, including raising the age of required minimum distributions and eliminating age limits for traditional IRA contributions, according to U.S. Bank.

The current lame-duck session of Congress has until the end of the year to pass SECURE 2.0. If that doesn’t happen, it is unlikely that the Republican-led U.S. House due to take over in 2023 would approve such a bill.

Supporters of the bill say it would go a long way toward helping employees saddled with student debt build up needed retirement savings. As Morgan Stanley noted in a recent blog, student loans are the second-largest source of debt in the United States, with 43.2 million Americans owing more than $1.71 trillion.

“It’s difficult to overestimate the impact of student loan debt crisis on future financial planning and outcomes for employees, particularly women and people of color,” said TJ Donovan, executive director at Morgan Stanley at Work. “When you know you should be saving for retirement but are mired in debt, it can feel like an either/or choice.”  

By treating qualified student loan repayments as matching contributions — which SECURE 2.0 proposes — employees who weren’t previously able to budget retirement contributions will be able to take advantage of their employer 401(k) matches.

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“These proposed changes are beneficial to empower individuals to reach savings goals and provide more flexibility upon retirement,” Sarah Darr, head of financial planning at U.S. Bank Wealth Management, said in a statement.

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