Nearly one-in-three Baby Boomer and Gen-X 401k plan participants who have student loan debt also have outstanding 401k loans—a much higher percentage than Millennials or Gen Z participants.
That’s among the key findings of research released Oct. 13 from Fidelity Investments based on an analysis of loans from Fidelity’s Student Debt Tool.
The findings are timely as more than 40 million Americans with federal student loans prepare for the return of required monthly payments and interest accrual when the repayment pause ends on January 31, 2022.
The research also shows Gen-Z joining the ranks of workers increasingly burdened by debt, entering adulthood with $27,900 in student debt on average. But notably, Boomers hold more than twice as much debt as these younger borrowers.
To help tackle the issue, Fidelity announced it will expand eligibility and increase the lifetime maximum loan payment offered to its own associates paying down student debt by 50%, effective in December.
“Employers play an important role in helping employees manage the often-overwhelming debt they’ve taken on for education,” said Tom Vogel, head of financial benefits for Fidelity Investments. “We’re excited to provide an expanded Student Loan Assistance program to our associates, as we know these programs can help put people on a path to achieving their long-term financial goals. We expect more than 5,000 Fidelity associates may benefit from this competitive program, which includes a waived waiting period to become eligible so new hires can enroll on day one, and a $15,000 lifetime maximum payment.”
In addition to relieving the financial and emotional pressure on those with student debt, new data from early adopters of the Student Debt Benefits Program for Fidelity’s plan sponsor clients shows a 78% decrease in turnover among employees with student loans, demonstrating the power of student loan assistance when it comes to attracting and retaining top talent.
“It’s clear that student loan borrowers are juggling multiple priorities above and beyond paying down their debt,” added Jesse Moore, head of Fidelity Investments’ student debt program for Workplace Investing. “Whether it’s Gen-Z borrowers landing their first jobs and starting an emergency fund, or Gen-X and Boomers nearing retirement, student debt can be both a financial and mental barrier to investing and achieving life goals. It’s encouraging to see employers increasingly coming to the table with solutions that meet the changing needs of their workforce, including student loan repayment assistance.”
The national conversation
As student debt gains attention at the national level, proposed legislation like the SECURE Act 2.0 could provide additional support to student debt borrowers.
This legislation would provide opportunities so employees could both pay off student debt and save for retirement by allowing their employer to contribute to their retirement account in the amount they are paying towards their student loans. This holds the potential to help Americans tackle their student loan payments today without sacrificing retirement contributions that will help with their future.
Importantly, Fidelity data indicates those with student loan debt are more likely to withhold retirement contributions or take a loan out against their 401k, which can significantly impact their ability to retire comfortably.
No generation spared
While Gen-Z and Millennials continue to battle debt from recent undergraduate and graduate programs, data from Fidelity’s Student Debt Tool reveals Baby Boomers are the most heavily burdened generation when it comes to average monthly payments, total balances, and interest rates.
This is likely due to a combination of factors, including career changes that require additional education, as well as loans taken out to finance a child or grandchild’s education, which often carry higher interest rates.
SEE ALSO:
• Biden Administration Extends Student Loan Repayment Pause Until January
• How Employers Can Tackle the $1.7 Billion Student Debt Issue
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
