What Is a 401(k) Student Loan Match?

Nobody’s sending Congress thank-you notes, but every now and then, they surprise us with something interesting—and dare I say . . . helpful.

Congress recently passed a law allowing businesses to offer 401(k) matches based on their employees’ student loan payments. And some big names have already started taking advantage—like Walgreens, Chipotle and even Disney.

If you’re wondering exactly how this works, you’ve come to the right place. Let’s break down this new program by answering a few key questions: What is a 401(k) student loan match? How does a student loan match work? And is this something you should take advantage of?

What Is a 401(k) Student Loan Match?

A 401(k) student loan match allows companies to offer 401(k) matches based on their employees’ student loan payments. This program also works with 403(b), 457(b), and SIMPLE IRA plans.¹

Until earlier this year, employers offering a 401(k) match could only make contributions to your retirement accounts if you were also contributing. Now, companies can offer matches based on the amount you pay toward a student loan, rather than what you contribute to your 401(k).

Technically, this whole shebang started when former President Joe Biden signed the SECURE 2.0 Act into law back in 2022. But the IRS only began providing guidance for companies interested in implementing this program in 2024.²

Sidenote: It’s not a requirement for employers to offer a student loan match—it’s just a new option. So don’t feel like you’re getting cheated if your company doesn’t offer this.

How Does a SECURE 2.0 Student Loan Match Work?

Let’s look at an example to see how this works. We’ll say you make $60,000 and your employer offers a 4% match on your 401(k) contributions, which comes out to $200 a month.

Until now, the only way for you to get that $200 was to contribute at least $200 of your own income into your employer-sponsored retirement account. Then your employer would match that contribution by also putting in $200.

But with this new rule, employers have the option of matching your student loan payments—not just your retirement contributions.

So, if you had that same 4% match on a $60,000 salary and you made a student loan payment of at least $200, your employer could still put $200 in your 401(k)—even though you didn’t contribute a dime. Pretty wild.

If your employer chooses to offer a student loan match, getting signed up should be as simple as filling out a few online forms. You may also be asked to provide some documentation, like proof of your student loan payments.

Student Loan 401(k) Match Pros and Cons

This program definitely sounds like a great deal if you’ve got student loans, but does it hold up when you look at it under a microscope? For the most part, yes. Let’s go over the pros and cons.

Pros

• It’s free money. I love free money, and I love when people pay off their debt. So getting free money for paying off debt is a combination I can get behind—unlike socks and Birkenstocks. (Seriously, what are we doing there, guys?)

• It lets you focus on your debt while still investing for retirement. I recommend pausing retirement investing while paying off debt so you can stay completely focused on becoming debt-free. This program lets you follow this advice and still get the match. It’s the best of both worlds. (Not an intentional Hannah Montana reference, but I’m not mad about it.)

Cons

• This applies to almost no one right now. While some companies have started adopting a student loan 401(k) match, it’s not widespread yet—and I don’t know that employers are going to be jumping on this bandwagon anytime soon. Plus, it only works with student loans. Your car payments and credit card bills aren’t going to get any love.

• You’re only incentivized to do the bare minimum. If you’re not too worried about having more margin in your budget because your employer is matching part of your student loan payments into your 401(k), you might be tempted to take your foot off the gas and let that debt continue stealing your income. But if you’re treating this program as a nice boost while aggressively paying off debt—and planning to invest way more once you’re debt-free—then I love it. But be careful.

Should You Take Advantage of a Student Loan Match?

If your employer offers a student loan 401(k) match, I don’t have a problem with you taking advantage of it.

But before you run off to HR and sign up, here are three important warnings.

1. Pause retirement investing outside of your match.

Remember: This benefit only works out because it lets you double dip by putting all your extra money toward debt while still getting some drops in the retirement bucket. (It’s also the only time you should double dip—let’s not be feral with the communal guac. Have some class.)

So, keep your own contributions paused and focus all your financial energy on getting out of debt. You can contribute for yourself once you’re debt-free.

2. Don’t let a student loan match slow down your debt payoff.

Like we already talked about, the only way to get out of debt is to attack it with a vengeance. That means you’re not going on vacation, eating out, upgrading your car, or buying matching workout sets from Lululemon. (Sorry, you’ll have to get the Amazon dupe like the rest of us.)

Seriously, you want to get out of debt ASAP so you can start investing and have way more margin to do so. So, don’t let this little bonus cause you to lose your sense of urgency.

3. Start investing 15% of your income once you’re debt-free with a fully funded emergency fund.

Getting an employer match while you’re paying off your student loans is cool, but it’s not enough to make much of a long-term difference in your retirement savings. So, once your debt is gone and you have a fully funded emergency fund of 3–6 months of expenses, it’s time to focus on the future instead of paying for the past.

How much should you invest at that point? I recommend setting your monthly investment contribution for 15% of your income.

The Bottom Line

To sum it all up, the 401(k) student loan match can be a positive development for anyone who uses it correctly and maintains a high level of intensity while paying off debt. It is free money, and it is a cool way to make progress on two important financial goals at the same time.

Just remember to stay hyperfocused on paying off your student loans as fast as possible. Because once you’re debt-free, that’s when you’ll really be able to start winning with money.

This article provides general guidelines about investing topics. Your situation may be unique. To discuss a plan for your situation, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros.