One Thing I Wished My Employer Knew When I was Paying Down Student Loans

After graduating college, I took my first job as an actuary.

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I remember my manager stressing the importance of contributing as much as I could to my 401(k) to make the most of the company's match. I was too embarrassed to tell him I barely made enough money to cover rent and my student loan payments. All the money I earned was going straight toward my past and my present. I had nothing to spare for my future.

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Many young people are once again about to find themselves in a similar position. After a more than three-year pandemic pause, federal student loan payments and interest started again October 1. Tens of millions of Americans had to go back to devoting significant chunks of their paychecks to school loan payments. This is going to take a toll not only on their finances, but also on their mental well-being.[1] [2]

It's time for employers to relieve some of that stress with a program that allows employees to pay off their school loans without punting on saving for retirement. My company, Abbott, pioneered a program with this novel approach in 2018, called Freedom 2 Save. This included securing a ruling from the IRS saying our new benefit complied with the tax code.

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Last year, Congress approved the SECURE 2.0 Act codifying that IRS ruling. Thanks to the new federal law, companies can more easily implement programs like Freedom 2 Save starting in January 2024. Now is the time to lay the groundwork.

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Companies that offer 401(k) plans usually require employees to make a tax-deferred contribution from their paycheck in order to receive an employer "match" — which isn't necessarily dollar for dollar. In Abbott's case, a 2% employee contribution would qualify for a 5% company match.

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That's great for those who can afford the 2% contribution to their 401(k). But that wasn't financially possible for me when I joined the workforce, and it isn't possible for a lot of recent graduates weighed down by school loan repayments.

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At Abbott, we do all we can to help our colleagues live their best lives personally and professionally. Some employees couldn’t take advantage of our strong 401(k) match because they needed every penny to pay down their student loans.

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This is what sparked our idea for Freedom 2 Save: essentially count student loan repayments as equivalent to 401(k) contributions.

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Now, for Abbott employees who pay at least 2% of their salaries toward student loans, Abbott makes a contribution to their 401(k)s equal to 5% of their salaries. And if an employee's loan payment is less than 2% of their salary, "rounding up" to 2% gets the debt paid off quicker.

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Our Freedom 2 Save plan doesn't give preferential treatment to employees who have taken out student loans, compared to those who didn't take student loans, or took them and already paid them off. All employees can still receive their 5% match from Abbott by making a tax-deferred contribution of at least 2% of their salary to their 401(k).

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The only change is that employees with student loans can fulfill their "contribution" obligation, and become eligible for the 5% 401(k) match, by devoting 2% of their salary to debt repayment.

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Abbott values its employees — but this program isn't altruism; it's good business. More than half of our nation pays a price in poor mental health due to the pressure of their personal finances.[3] With student loan payments resuming, many more will be feeling added pressure.

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Currently, 91% of young adults with student loans are so stressed about money they feel it’s impacting their physical and mental wellness, according to a recent Morning Consult survey on behalf of Abbott. Workers who rate their mental health as "poor" or only "fair" are estimated to miss nearly 12 unplanned days of work a year — versus only 2.5 days for those who rate their mental health as good or better.[4] Generalized across the entire workforce, those extra missed days cost the U.S. economy $47.6 billion annually in lost productivity.[5]

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By ensuring their employees don't have to choose between paying off student loans and saving for retirement, companies can significantly reduce workers' stress — and boost their productivity and happiness in the process.

To help companies develop and implement student loan benefit programs of their own, we created the Freedom 2 Save blueprint ?https://www.abbott.com/freedom2save.html.

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We're proud that our Freedom 2 Save program has now been enshrined in federal law through the SECURE 2.0 Act.[6] It's good for employees, employers and lenders alike.

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[1] https://www.credit.com/blog/student-loan-debt-statistics/#:~:text=At%20the%20end%20of%202022,%2C%20you're%20not%20alone.

[2] https://www.usa.gov/covid-student-loan-help

[3] https://www.nbcnews.com/business/consumer/financial-wealth-and-mental-health-americans-worried-about-money-rcna83569

[4] https://www.gallup.com/workplace/404174/economic-cost-poor-employee-mental-health.aspx

[5] https://www.gallup.com/workplace/404174/economic-cost-poor-employee-mental-health.aspx

[6] https://www.fidelity.com/learning-center/personal-finance/secure-act-2