In recent news, the IRS released information that indicates an effort to help fix the student loan crisis currently burdening people across the country. Your Rochester accountants are excited to see such efforts and have outlined the most important facts for you here!
IRS RULING & STUDENT LOANS
On August 17th, the IRS (Internal Revenue Service) released a private letter that indicates that employers could possibly match employees’ contributions to retirement plans, even if the employee does not contribute to a retirement fund themselves. They would be eligible for such a program as long as they make qualifying student loan payments. While this letter only applies to the company it was addressed to, it nods at the possibility of similarly designed plans for other companies to help their employees with student loans. You can read the full letter here.
Put Into Practice
So what does this look like? Check out the benefit put into practice from an article from Forbes below.
“Let’s assume an employee receives compensation of $2,500 during a two-week pay period, or roughly $5,000 per month. As long as the employee makes a monthly student loan payment of at least 2% of their eligible pay or $100 ($5,000 x 2%), the employer would make a matching contribution equal to 5% of the employee’s eligible pay or $250 ($5,000 x 5%) into their 401K retirement plan. To meet the minimum 2% contribution, the employee would still be allowed to make elective contributions to the 401K plan.”
Who it Will Help
This ruling will mainly impact millennials. They are burdened the most by student loan debt, and the least likely to contribute to their retirement funds. Approximately 1 out of 2 millennials currently contribute to their retirement funds.
Why It Is So Important
By opening the possibility of matching student loan repayments, it seems the government is working to find a way to fix the student loan crisis. We’ve outlined some facts about the issue below.
STUDENT LOAN STATISTICS IN THE UNITED STATES
There’s no doubt that student loans are increasingly burdening people across the country. In fact, according to Make Lemonade, in 2018, the total student loan debt is $1.52 trillion with 44.2 million borrowers in the United States. Plus, the increase in debt in the most recent quarter is $29 billion. Looking specifically at New York, there are 2.3 million borrowers that owe $78.4 billion. Stepping away from the numbers and into the social repercussions, we’ve highlighted the main five points of a study by the Pew Research Center below.
- About four-in-ten adults under age 30 have student loan debt.
- The amount students owe varies widely, especially by degree attained.
- Young college graduates with student loans are more likely than those without loans to have a second job and to report struggling financially.
- Young college graduates with student loans are more likely to live in a higher-income family than those without a bachelor’s degree.
- Compared with young adults who don’t have student debt, student loan holders are less upbeat about the value of their degree.