Student loans are getting in the way of Americans’ ability to save for retirement, a new study finds. (iStock)
A recent study shows that student loan payments are getting in the way of building retirement savings for some Americans, especially those with higher salaries.
Americans who pay student loans have lower contribution rates and lower total balances in their 401(k) accounts than Americans with the same income who do not pay student loans. report This was revealed in a survey by the Employee Benefit Research Institute (EBRI).
The savings gap is most pronounced among people earning more than $55,000 a year. The report found that high-income earners with student loans had an average savings rate of 6.1%, while those with the same income but no student loans had a savings rate of 7.3%.
Americans with incomes of less than $55,000 in student loans also contributed a lower rate to their retirement savings at 5.3%, compared to the 5.7% rate paid by people earning the same income without additional debt.
One-fifth of the participants in the study sample had student loan payments in at least one of the three years of the study, and 12.1% had repayments during the study period. The study found that 31.6% of employees increased their 401(k) contributions when they were able to stop making student loan payments.
If you’re trying to save for retirement, high-interest debt may get in your way. You can also consider paying it off with a personal loan at a lower interest rate. When you visit Credible, you can get a personalized rate in minutes without affecting your credit score.
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Secure 2.0 Act Could Help Americans
of Secure 2.0 Act of 2022 introduced several new optional provisions in early 2024 to help plan sponsors improve their retirement preparedness. It includes Section 110, which allows employers to match payments of an employee’s eligible student loan debt with corresponding contributions to the employee’s retirement plan account. This can be a 401(k), 403(b), SIMPLE IRA, or, for public employees, a 457(b) plan.
This law was passed by Congress to help Americans save more for their retirement. and signed into law This was said by President Joe Biden last year.
“Student loans are a barrier that prevents far too many Americans from participating in important life milestones, especially saving for retirement,” said Jesse Moore, senior vice president of student loans at Fidelity Investments. he said. statement. “The introduction of retirement-focused student loan benefits is a transformative step forward for the benefits industry and will help millions of people on the path to financial health and mobility. ”
This provision provides that if an employee with student loans is unable to contribute to a 401(k) plan at the exact matching level or at all to pay for these payments, the employee must receive at least an equal amount of contributions. , to help you build your future assets. retirement.
If student loans are preventing you from maximizing your savings for retirement, you may want to consider consolidating your private loans into one with a lower interest rate. Visit Credible to speak with a student loan refinance expert to find out if this option is right for you.
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Borrowers are struggling to make repayments
Student loan payments resumed in October after a 42-month suspension. Although there are several avenues for relief, millions of borrowers have missed at least one payment. Some borrowers are refusing to pay in hopes of putting pressure on the government to cancel outstanding debts, Intelligent.com recently reported. investigation Said.
More than a third (36%) of borrowers who have not yet made a payment said they plan to resume payments as soon as possible, and an equal number said they did not know when they would be able to resume payments. An additional 12% of these borrowers are taking advantage of the Biden administration’s student loan repayment “increase,” which means borrowers won’t face penalties such as being reported as missing payments to credit bureaus until September 2024. Stated.
While most borrowers are missing payments because they can’t afford to pay, 9% are boycotting payments to pressure the government to cancel their student loans. Most of these borrowers hope their efforts will bring attention to the topic of student loan debt.
If you are having trouble paying your private student loans, there is no federal relief available to you. You may also consider refinancing your loan at a lower interest rate to reduce your monthly payments. Visit Credible to see personalized rates in minutes.
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