Many student loan borrowers used the pandemic payment pause to bolster their retirement savings, new data from Fidelity suggests.
The number of student loan borrowers contributing at least 5% of pay to their 401(k) increased from 63% to 72% during the student loan forbearance program that began in March 2020, Fidelity found. In addition, the number of student loan borrowers with a loan out against their 401(k) decreased to 13% during the pause from 19% prior.
“Student debt is a burden and barrier to saving for so many,” Jesse Moore, senior vice president, head of student debt at Fidelity Investments, told Barron’s via email. “The payment pause was the first opportunity to focus on other important life and financial goals for the first time in many of their adult lives. These people were able to buy homes, start families, and unsurprisingly, many chose to prioritize saving for retirement.”
Soon, the country’s roughly 44 million federal student loan borrowers will have to squeeze loan payments into their budgets, many for the first time in more than three years. After being extended multiple times, the payment pause is set to lift this fall. Interest will start accruing on Sept. 1, and payments will be due starting in October, the U.S. Department of Education has said.
Estimates for the average federal monthly loan payment range from about $270 on the low end to around $400 on the higher end, according to Mark Kantrowitz, student loan expert and author of How to Appeal for More College Financial Aid.
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The Biden administration recently launched the SAVE plan, a new income-driven repayment plan aimed in part at lowering borrowers’ monthly payments. The program comes in the wake of the U.S. Supreme Court’s rejection of the administration’s plan to forgive up to $20,000 in federal loans per qualifying borrower.
Student debtholders balancing retirement savings and student loans may get additional help next year. Under the Secure 2.0 law and starting in 2024, employers will have the option to match workers’ student loan payments with a contribution to their retirement plan. In other words, student loan borrowers could qualify for their employer match even if they aren’t in a position to contribute to their 401(k).
Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com
Read More: Retirement Savings Jumped During Student Loan Pause: Fidelity