Student Loan Payments and the 401(k) Match: An Opportunity to Help Employer Clients

Alice Orzechowski, CPA, CMA, EA

Millions of employees with student loans are facing a significant change in their monthly budgets. With the SAVE repayment plan ending and borrowers being moved into other repayment arrangements, many employees may find themselves making substantially higher monthly student loan payments.

For tax practitioners, this creates an opportunity to provide planning advice not only to individual borrowers, but also to employer clients sponsoring 401(k) plans.

One provision in SECURE 2.0 deserves particular attention: an employer may design its retirement plan so that an employee’s qualified student loan payments can generate an employer retirement plan matching contribution.

In other words, an employee may be able to continue earning an employer 401(k) match even when student loan payments prevent the employee from contributing enough to the 401(k) personally.

Student Loans Compete With 401(k) Contributions

Consider an employee who earns $60,000 and participates in a 401(k) plan that provides a dollar-for-dollar match on the first 4% of compensation contributed. Normally, the employee contributes $2,400 and receives a $2,400 employer match.

But suppose the employee’s student loan payment increases substantially. Faced with another few hundred dollars of required monthly expenses, the employee decides to reduce or eliminate the 401(k) contribution.

The immediate cash-flow problem may be solved, but the employee has potentially sacrificed something extremely valuable—the employer match. SECURE 2.0 provides employers with another option.

Qualified Student Loan Payment Match

Section 110 of the SECURE 2.0 Act permits employers to make matching retirement plan contributions based upon an employee’s qualified student loan payments (QSLPs). The provision applies to plan years beginning after December 31, 2023, and may be incorporated into:

401(k) plans
403(b) plans
governmental 457(b) plans
SIMPLE IRA plans

For purposes of the matching contribution, a qualifying student loan payment can be treated in a manner similar to an employee elective deferral. The concept is straightforward: paying down student debt does not necessarily have to mean giving up the employer retirement match.

Example: Turning a Student Loan Payment Into a Retirement Match

Assume Jane earns $60,000 and her employer’s 401(k) plan matches 100% of employee contributions up to 4% of compensation. The maximum potential employer match is therefore $2,400.

Jane previously contributed 4% of her salary to the 401(k), allowing her to receive the entire $2,400 employer match. Her student loan payments now increase, however, and she can no longer afford both the student loan payment and her previous 401(k) contribution.

If her employer’s plan includes a qualified student loan payment matching provision, Jane’s qualifying student loan payments may generate an employer contribution to the 401(k) even though she has reduced or eliminated her elective 401(k) contributions. The student loan still gets paid, but Jane does not necessarily lose the employer retirement contribution.

Over a period of years, preserving those employer contributions and the earnings they generate could make a substantial difference in the employee’s retirement savings.

A Planning Opportunity for CPA Employer Clients

CPAs should consider discussing this provision with employer clients, particularly employers with younger professional workforces or employees who are likely to carry substantial student loan debt. A simple question can start the conversation: “Does your 401(k) plan provide a matching contribution for employees who are making qualified student loan payments?” Many employers—and many employees—may not realize this option exists.

The provision can also become an employee recruitment and retention benefit. An employer that already provides a 401(k) match may be able to structure that benefit so employees struggling with student debt do not have to choose between paying their loans and receiving an employer retirement contribution.

Importantly, the QSLP matching provision is optional. Employers are not automatically required to provide the benefit simply because their existing plan provides a regular 401(k) match.

Employers interested in adopting the provision should work with their plan administrator, recordkeeper, TPA and ERISA counsel as appropriate to determine the required plan amendments and administrative procedures.

IRS Notice 2024-63 Provides Implementation Guidance

IRS Notice 2024-63 provides detailed guidance for employers implementing QSLP matching programs. Among other matters, the guidance addresses employee certification of qualified student loan payments, reasonable administrative procedures, matching contribution frequency and nondiscrimination testing.

This means the benefit should not simply be implemented informally through payroll. The retirement plan’s provisions and administrative procedures need to support the QSLP matching program.

For CPA advisers, the objective generally is not to draft the retirement plan amendment. Instead, it is to identify the planning opportunity and get the employer talking to the appropriate retirement plan professionals.

Don't Overlook IRC §127

There is another student-loan-related employer benefit worth discussing at the same time. IRC §127 permits an employer to maintain a qualified educational assistance program. Educational assistance can include employer payments of principal or interest on an employee’s qualified education loan. The exclusion is limited to $5,250 per employee for 2026, shared with other educational assistance provided under the §127 program.

The One Big Beautiful Bill Act made the student loan component of §127 permanent and provides for inflation adjustments to the $5,250 limit for taxable years beginning after 2026. Depending upon how the employer’s §127 program is structured, payments may be made directly to the loan servicer or to the employee.

The §127 program must satisfy the statutory requirements, including having a written plan and complying with applicable nondiscrimination rules. Consequently, an employer potentially has two separate tools to help employees struggling with student debt:

A QSLP retirement plan match. The employee pays the student loan and that payment can generate an employer retirement plan contribution.
IRC §127 educational assistance. The employer helps pay the employee’s qualifying student loan itself, subject to the applicable annual limitation and plan requirements.

These provisions accomplish different objectives and should be evaluated separately.

Why This Matters Now

The Department of Education began directing millions of SAVE borrowers to move into other repayment plans during 2026. For some employees, the transition can produce a significant increase in required monthly payments.

When household cash flow gets tight, the 401(k) contribution is often one of the first expenses an employee reduces. That can create a second financial consequence: the employee not only saves less but may also lose the employer match.

A properly designed qualified student loan payment matching provision can help address that problem.

A Good Year-End Planning Question

As CPAs meet with business clients for year-end tax and benefit planning, consider adding one more question to the discussion: “Do you have employees making student loan payments who may be giving up your 401(k) match because they cannot afford to do both?”

If the answer is yes, it may be time for the employer to talk with its retirement plan provider about adding a qualified student loan payment matching feature.

For employees caught between retirement savings and student loan payments, that relatively obscure SECURE 2.0 provision could turn out to be a very valuable employee benefit.

Practitioner Note

A QSLP match should not be confused with an employer’s direct payment of an employee’s student loan under IRC §127. Under the QSLP rules, the employee makes the student loan payment and the employer makes the corresponding matching contribution to the retirement plan. Under §127, the employer provides educational assistance that may be used to pay qualifying student loan principal or interest.

Both provisions can be valuable, but they operate very differently.

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