America’s student debt crisis is undeniable. Over 45 million Americans, representing roughly 26% of the U.S. workforce, collectively hold $1.7 trillion in student debt. For Finance and HR executives, this reality presents both a challenge and a profound opportunity to differentiate your company and secure top talent. However, as you strategize for 2025 and beyond, it’s crucial to understand that not all student loan benefits are created equal, especially when it comes to your talent acquisition and retention goals.
Suppose your recordkeeper or investment advisor has contacted you about the new provisions of the SECURE 2.0 Act. In that case, you’ll learn below why it’s not worth taking their meeting, and why instead your firm needs to be working on implementing a direct Student Loan Repayment plan.
SECURE 2.0 indeed allowed 401(k) plan sponsors to count employee student loan payments as elective deferrals for matching contributions. In theory, this might seem like a clever way to help employees save for retirement while addressing their debt. In practice, this approach is fundamentally flawed for achieving your talent objectives.
The 401(k) Student Loan Match: A Mismatch for Your Talent Goals
Here’s why tying student loans into your 401(k) plan is unlikely to deliver the recruitment and retention results you seek:
- It Solves the Wrong Problem for the Wrong People: The vast majority of eligible employees who decline to participate in their 401(k) plans are low-income, young, + crucially, do not have a college degree, and therefore do not carry student loan debt. A benefit designed for student loan holders simply won’t engage this large segment of non-participants.
- It’s Confusing and Administratively Burdensome: Employers are expressing significant hesitation due to the complexities surrounding ERISA, plan documentation, testing, and contribution timing. Simplicity is key to employee engagement, and this provision introduces unnecessary hurdles.
- It Risks Discouraging Personal Savings: Programs like the pioneering initiative at Abbott Labs, which effectively use student loan payments as an alternative path to a 401(k) match, may inadvertently teach employees that saving for retirement is something the company does for them, rather than encouraging active personal contributions. Some employees might even reduce their individual 401(k) contributions if they can get the employer match by making loan payments.
- Unproven ROI for Talent: These programs fail to impact critical talent acquisition and retention metrics significantly. For instance, despite considerable media attention, Abbott Labs’ program had a participation rate of less than 1% in 2018 and didn’t even reach 4% of eligible employees five years after its introduction. Such low participation makes it impossible for employers to see a meaningful reduction in employee turnover or days-to-hire. Beyond the limited number of employees affected, it’s also highly unlikely that an employee’s decision to accept a job offer or remain with an employer would hinge on a 401(k)-linked program that counts student loan payments as elective deferrals for matching purposes.
Direct Student Loan Repayment: The Proven Path to Talent Success
In contrast to the complexities and questionable effectiveness of 401(k)-linked solutions, direct Student Loan Repayment plans offer a clear, proven path to achieving your talent goals. These programs, where employers contribute directly to employees’ student loans each month, have been successfully implemented since 2015.
Here’s the powerful impact they deliver:
- Faster Hiring Timelines: Companies offering direct Student Loan Repayment plans are able to hire 13% faster. 67% of candidates are “absolutely” more willing to accept a job offer from a company offering this benefit.
- Longer Employee Tenure: Expect 36% longer employee tenure, a critical metric for reducing costly turnover.
- Enhanced Diversity: These programs contribute to greater gender and cultural diversity within your workforce.
- Meaningful Financial Relief: Even modest monthly contributions can offer substantial assistance to employees. Your company’s $50 per month contribution can help an employee pay off debt two years faster, saving over $7,000 in interest over the life of the loan. This is a tangible benefit that resonates deeply with employees.
- Broad Appeal to College-Educated Talent: These solutions appeal to a wide range of your workforce, from young professionals and specialists to executive leadership, many of whom are still managing advanced degree debt.
- Simplicity and High Engagement: Our experience shows that simple, well-communicated programs can achieve participation rates of 20-25% amongst your eligible population – nearly all those workers who hold student debt. Most popular programs offer consistent monthly tax-free contributions.
Now is the Time: The OBBB and Peanut Butter’s Seamless Launch
The urgency to act has never been greater:
- The Payment Pause is Over: After years of administrative forbearance, federal student loan payments resumed in October 2023, creating a “stark new reality” for borrowers facing average monthly costs of nearly $350.
- Broad Forgiveness is Not Coming: The Supreme Court struck down President Biden’s Debt Relief Plan in June 2023, and widespread forgiveness initiatives are not anticipated. Your employees are looking to you for help.
- The OBBB Made It Permanent! Signed into law on July 4, 2025, the OBBB Act has permanently removed the expiration date (previously December 31, 2025) for tax-free employer student loan payments under IRC Section 127(c)(1)(B). This means you can confidently integrate student loan repayment into your long-term benefits strategy.
- Gaining an Edge in a Competitive Market: The end of Graduate PLUS loans after July 1, 2026, means future advanced degree students may rely more on private loans, making employer repayment benefits even more critical for attracting this talent.
Companies that offer direct Student Loan Repayment today are winning the war for talent. Don’t look to your recordkeeper to figure out complex 401(k) integrations that won’t achieve your goals.
Peanut Butter can help you launch a proven, effective Student Loan Repayment program seamlessly in under an hour. Our experienced team has implemented hundreds of programs across various industries, ensuring your benefits are simple, well-communicated, and maximize your return on investment in attracting and retaining college-educated talent.
Contact Peanut Butter today to get your program ready and start making a real difference for your employees and your organization’s success.