New Fidelity benefit aims to help relieve student loan burden

The program enables employers to match workers' student loan repayments with contributions to their 401(k) accounts to help them save for retirement while paying down student debt.

Pay down debt or save for the future? A new Fidelity offering is intent on helping college graduates currently wrestling with that difficult decision.

According to Fidelity data, 67 percent of recent college graduates weighed down by student loans say this debt burden keeps them from enjoying major life goals like saving for retirement, marriage or purchasing a home. Furthermore, the asset manager said demand for student debt relief has grown more than fivefold since the passing of SECURE 2.0 in December 2022.

As a result, on Monday Fidelity announced a new offering to increase access to student debt benefits for the more than 1.2 million Americans affected.

“Student debt is a barrier that prevents so many Americans from participating in important life milestones, particularly saving for retirement,” Jesse Moore, senior vice president and head of student debt at Fidelity Investments, said in a statement. “The introduction of a retirement-focused student debt benefit is a game-changing step forward for the benefits industry that will help millions on their path toward financial wellness and mobility.”

According to Fidelity, the program’s benefit is put to practice when an employee makes a student debt payment. Once the payment is made, their employer can then match a percentage of that payment in the form of a retirement plan contribution, thereby allowing the employee to keep saving for retirement.

That benefit, made possible through the passage of SECURE 2.0, allows employers to use money already allocated for retirement plans to help employees save for retirement as they pay down student debt, Fidelity said.

Its data revealed that participants enrolled in a student debt retirement benefit are projected to nearly double their 401(k) balances.

“As one of the largest 401(k) plan providers in the country in terms of assets, Fidelity is well positioned to provide the technology to help a broad number of Americans to not only save for retirement but also more easily pay down college debt,” said Daniel Lash, certified financial planner at VLP Financial Advisors. “Fidelity historically has been a technology leader in the 401(k) space but as this technology moves down-market and other 401(k) providers begin offering it, then there will be an even broader impact with helping with student loan payments.”

Lash added that parents and students also need to better manage student loan debt through their “choice of college attended and ROI of majors taken relative to jobs in that area of study.”

Steve Stanganelli, certified financial planner with Clear View Wealth Advisors, welcomes the announcement by Fidelity as a way to help 401k participants reduce student debt while saving for retirement.

“This kind of action can really help resource-limited workers try to improve their personal bottom lines,” Stanganelli said. “And, as a business strategy, I think it will further expand Fidelity’s market share as a 401k provider.”

Stanganelli added that he sees this as a challenge to other 401(k) service providers.

“I wouldn’t be surprised to see other platforms roll out similar or better arrangements to maintain or attract more clients in the 401(k) space,” he said.

Fidelity also pointed out that student debt repayment benefits play a significant role in attracting and retaining talent, with its research found that employees consider student debt assistance to be the top benefit contributing to their financial well-being.