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Biggest Casualty of Servicing Student Loan Debt: Saving

A new survey finds that 6 in 10 US adults who took on a student loan debt for their delayed education a major financial decision because of this debt, but Congress may provide some relief with respect to saving for retirement.

The likelihood of delaying at least one financial decision is slightly higher for younger generations than their older counterparts, however. According to the survey by Bankrate, that number rises to 74% of Gen Z borrowers (age 18 to 25) and 68% of Millennial borrowers (age 26 to 41), compared with 54% of Gen X (age 42 to 58) and 42% of Baby Boomers (age 58 to 76).

Of the major financial decisions, saving for retirement and emergencies took the biggest hit, with 27% of respondents delaying saving for emergencies and 26% delaying saving for retirement.

And while one might presume that the delayed saving applied more to younger generations, the survey found that this was consistent across age groups. In each generational category—except for the silent generation (age 77-plus)—roughly 25% of respondents reported delaying saving for retirement, saving for emergencies and paying off other debt.

Geographically, student loan borrowers living in the West (67%) and Northeast (64%) are more likely to have delayed at least one major financial decision than those in the South (57%) or Midwest (51%). In addition, Westerners are the most likely to have delayed buying a house (28%), while saving respondents in the Northeast are most likely to have put off for emergencies (33%).

“Savings is the biggest casualty of servicing student loan debt, as saving for emergencies and saving for retirement top the list of financial decisions most often delayed as a result of student loan debt,” notes Greg McBride, Bankrate.com’s chief financial analyst. “However, 59% of those that have borrowed and graduated say the education has had a positive impact on their earning potential or job opportunities, so while saving might be delayed, for many it will result in a greater ability to save in the long run ,” McBride further observes.

With continued federal student loan deferment offering payment relief to borrowers, 74% of current borrowers who qualify for this assistance said prior to the latest extension that pushing the deadline back would have a positive impact on their personal finances (49% very positive and 25% somewhat positive). Another 18% said it would have no impact, and 8% indicated it would have a negative impact.

YouGov Plc conducted the survey on behalf of Bankrate.com from March 29–April 1, 2022, among 3,939 adults, with 1,442 taking on student loan debt for their own education.

Congress to Act?

In the meantime, servicing that student loan debt while saving for retirement might get a little easier under legislation working its way through Congress. The Securing a Strong Retirement Act of 2022 (HR 2954)—aka SECURE 2.0—approved by the House of Representatives in March includes a provision to treat student loan payments as elective deferrals for purposes of matching contributions.

Section 111 of the legislation would permit an employer to make matching contributions under a 401(k), 403(b), SIMPLE and governmental 457(b) retirement plans with respect to “qualified student loan payments.” The provision is intended to assist employees who may not be able to save for retirement because they apparently are overwhelmed with student debt.

Similar legislation—the Retirement Parity for Student Loans Act (S. 1443)—has also been introduced in the US Senate by Sen. Ron Wyden (D-OR), the chairman of the Finance Committee. Both bills have the support of the American Retirement Association. SECURE 2.0 is currently pending in the Senate, where the Finance Committee is expected to consider similar legislation in the coming weeks.

The student loan issue has been receiving increased attention on Capitol Hill and within the retirement community over the last few years ever since a 2018 IRS private letter ruling that permitted a 401(k) plan to be amended to include a student loan benefit program. That ruling allowed an amendment to a plan providing that student loan repayment nonelective contributions under the program would not violate the “contingent benefit” prohibition.

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