Matching student loan payments through retirement plans: A guide to a valuable benefit

By Dan Ryan

As Americans struggle to achieve their personal and professional goals under a mountain of crushing student loan debt, SECURE Act 2.0 offered some relief through a new employee benefits rule.

Under this change, employers can match student loan payments with contributions to their 401(k), 403(b), governmental 457(b), or SIMPLE IRA plans.

Initial guidance, effective for plan years beginning after December 31, 2023, was vague, prompting many employers to bypass the benefit. However, new IRS guidance issued in August 2024 clarified the definitions of student loan payments, qualified education loans, and qualified education expenses. The guidance also details the documentation employees must provide for their annual qualification certification.

Why match student loan debt?

More than half – 55 percent to 57 percent – of college graduates take on student loan debt. On average, they owe $500 per month for undergraduate degrees and more than $750 per month for graduate degrees. When these indebted students move into the workplace, they can lack the means to participate in their company's retirement plans, whether they are entry-level employees or more senior employees who pursue graduate degrees.

Employers who adopt a retirement plan match on qualified student loan payments create incentives that can attract qualified, highly educated talent by making retirement savings accessible.

Guidance for the guidance

In its initial, somewhat vague guidance, the IRS said the program applied to loan payments on behalf of the employee for higher education expenses. The match can’t exceed the annual employee deferral limit, employees must certify their payments annually, the match must work the same way as the normal match offered by the company, and eligibility is limited to employees who would otherwise be eligible to receive the match.

While appealing, additional details were still needed which hampered companies from implementing the program in 2024, causing the IRS to issue Notice 2024-63. The notice provided additional, much-needed guidance applying to plan years beginning after Dec. 31, 2024, including answers to the following questions:

• What is a qualified student loan payment? A qualified student loan payment (QSLP) is a payment made during the plan year by an employee in repayment of a qualified education loan. The annual matching contribution calculation on QLSPs is limited to the annual deferral limit under 402(g), or $23,000 in 2024 and $23,500 in 2025. The participant’s total compensation, if less, is also a limiting factor.

Example: John makes $100,000 per year and pays $25,000 a year in QSLPs, plus $3,000 in elective deferrals to his company’s 401(k) plan. With the $23,500 deferral limit of 2025, his maximum QSLPs eligible for matching purposes is $20,500.

QSLPs must be matched at the same rate as deferral contributions, can’t have different vesting schedules, can’t have different eligibility provisions, and can’t limit loans to just the participant’s education but must be offered for spouses and dependents, as well.

• What is a qualified education loan? A qualified education loan is a loan used solely to pay for higher education expenses for the participant, the participant's spouse, or the participant's dependents. If the loan is for the spouse or dependents, the employee would have to be the borrower or a cosigner on the loan in addition to being the one making the payments.
• Who qualifies as a dependent? A dependent is someone under 24 years old whose home is “the same principal place of abode” as the employee, living at home for more than half the year. They cannot provide more than half of their own financial support, and they can’t have filed a joint tax return with any potential spouse. For dependents, your employee’s payments on these loans would essentially only be eligible for match as long as the dependent is in school and not over the age of 24.
• What are considered qualified education expenses? Qualified higher education expenses include tuition, fees, books, supplies, room and board, and off-campus housing.
• What documents do you need for annual certification? Employees must annually certify their loan payments, stating the amount and date of each loan payment, proof that the employee made the payments, proof that the loan is a qualified education loan and is paying for qualified education expenses, and proof that the employee is either the borrower or a cosigner on the loan. Employees can self-certify their payments, submitting documentation directly to the employers without notarizing, although employers may require additional proof of payment, such as canceled checks.

Be aware that the guidance does not address how the maximum annual deferral limit applies to plans of fiscal year ends, and employers must calculate the match for each pay period, not annually.

Conclusion

With student loan debt putting a heavy burden on college graduates, employers can offer a vital benefit to their team members through retirement-plan matching contributions. Contact the employee benefits team at Boyer & Ritter to learn how to maximize this opportunity.

Dan Ryan is a manager at Boyer & Ritter LLC and a key member of the firm’s employee benefit plan group. He provides audit and accounting services for the construction industry and other closely held businesses. Contact Dan at 717-761-7210 or dryan@cpabr.com.