Connecting Student Loan Debt, Inflation and Retirement Saving

Student loan debt and inflation are both barriers to workers saving for retirement, Voya research shows.

Voya’s survey, conducted in June, found that 70% of Americans with student loan debt said that inflation has a severe or major impact on their ability to save for retirement. And, while 74% of Americans said inflation has made them feel less financially secure, the number is even higher among those with student loan debt, at 82%.  

People concerned about the impact of inflation and people with a high level of student loan debt both “expressed a concern over their short-term financial security,” says Jeff Cimini, senior vice president for retirement product management at Voya Financial. “When we compare to those that feel secure in the short run, the behavior is rather significant in terms of how they approach long-term savings goals like retirement.”

The survey found that 91% of workers with student loan debt said they would save more money for retirement if their employer offered a student loan repayment program. Voya research also shows that among Americans with student loans, 87% agreed that college savings plans and student loan debt solutions are important workplace benefits for employers to offer to workers. And, of those surveyed, 85% said student loan debt affects the amount of money they can invest and 84% said they would be more likely to work for an employer that offered some assistance with paying off student loan debt.

Voya data also show that among Americans with student loans, 81% agree or strongly agree that student loan debt affects their ability to save for retirement; 80% worry about their ability to pay off student loan debt; and 76% also agree or strongly agree they want help prioritizing monthly bills and making a budget, including student loan debt payments.

Cimini suggests that pending federal retirement plan legislation could help employers and workers with student loan debt repayment arrangements and retirement.

“We think a lot of plan sponsors are waiting for SECURE 2.0 to allow them to match to the retirement plan payments that are being made to student loan debt,” Cimini says. “That is hugely beneficial because it—at least [for] younger workers—gets money into their retirement plan, even if it’s just the match [to] get the benefit of compounding over the life of that employee’s work life.”

SECURE 2.0 refers to a package of several bills pending in the Senate that follow up on 2019’s Setting Every Community Up for Retirement Enhancement Act, aka the SECURE Act.

One provision in the pending legislation codifies an innovative plan sponsor offering, he adds.

“There was a private letter ruling that allowed this, but it was it was unique to one company called Abbott Labs, and what SECURE 2.0 would [do is] codify the Abbott Labs private letter ruling,” Cimini says. “For those folks that feel like they’ve got a lot of student loan debt and are making payments, they can use those payments to secure the match from their employer for the retirement plan.”

A second provision in the pending legislation would allow plan sponsors to establish emergency savings accounts inside of their retirement plans.

“These would look like sidecar accounts where one could establish through payroll deduction their own emergency savings accounts,” Cimini says. “We think both of those will improve the feeling that employees have toward their short-term financial security, by the fact they’ve got a nest egg or a savings account or they’re actually putting money into the retirement plan, while they service their college debt. [It] will improve their short-term financial security and then a lot of the other longer-term positive decisions they make will take hold.”

Cimini notes that data gathered throughout the COVID-19 pandemic finds a connection between workers being worried about their short-term finances and not engaging in long-term planning decisions such as retirement.

“We’re starting to see a common theme thread though, and I guess the way that I would describe it is for employees who are concerned about their short-term financial situation, they tend not to get engaged in long-term savings and planning decisions like retirement,” Cimini explains.

He says that, for example, Voya saw approximately “four times the amount of hardship withdrawals taken out than we did pre-COVID,” referring to the plans for which Voya is the retirement plan provider.