These changes will have a significant impact on plan participants. The New York Fed estimates that nearly one of every four borrowers required to make payments are currently behind. This may mean employees can contribute less, if any, to their retirement plans. It may also mean some parents will consider forgoing saving for a children’s future education.
There is a rising tide of concern among some employees who have relied on the graduated payment options for their student loans. They are concerned about changes to student loans in the recent budget bill that made its way out of committee late on May 18th, 2025, and on to its final stop later that week. The legislation may change student loan options significantly, including doing away with those graduated payment options. This could cause payments to double or even triple for some borrowers. Employers may think that their options for addressing their employees’ student loan concerns are limited. In this article, we will review some of the options employers have to help their employees concerned about changes to their student loan payment plans.
To be clear, we are not discussing those employees who deferred student loan payments and now must start repaying them. Those employees may benefit from some of the programs mentioned in this article. But this is geared to employees who may face a sudden change in their budget options. The Department of Education began collecting those loans that went into deferment in 2020 on May 5 of this year.
Changes to student loans may not be all bad news. On the positive side, for some borrowers, under the new law their payments might be lower and might even have some interest waived. That is because income-based payment options will change but continue. For some borrowers the amount of their payments may be reduced. There are also possible benefits to those who have been making payments for more than 20 or 25 years.
On the negative side, the new law may cap borrowing to amounts lower than in the past. For example, government loans for undergraduates would be capped to $50,000, where they had been $57,000 and graduate students would be capped at $100,000 where they had been $138,500. Professional programs, such as MDs and JDs, were previously capped at the same amount as graduate programs ($138,500). Their caps will increase to $150,000. Many experts say that the biggest changes will be to those with graduate school debt averaging more than $110,000. The new legislation would require higher payments upfront, no longer allowing the graduated payments.
These changes will have a significant impact on plan participants. The New York Fed estimates that nearly one of every four borrowers required to make payments are currently behind. This may mean fewer employees can contribute to their retirement plans. It may also mean some parents will consider forgoing saving for a children’s future education.
Sponsors several options they can use to help their employees. The first way is through helping employees pay off their loans. Through the end of 2025, employers can provide up to $5,250 to employees to help with qualified student loans. Additionally, for plans starting after January of 2024, Employers can provide matching contributions to qualified student loan payments through their 401(k) matching programs.
Sponsors can affirm the priority of paying down debt. For those employees with incredibly tight budgets, paying off student loans should come ahead of retirement savings. If an employee truly cannot find any excess in their budget to put towards retirement, plan sponsors can help educate employees about the best ways to pay the student loan debt off first.
Play the Options. Sponsors can help employees understand repayment, modification, and consolidation options through workshops and online tutorials. This is also true for older employees who may be cosigning on their children’s loans. Those employees may benefit from understanding the obligations of a cosigner if their child fails to make payments. Additionally, some debt repayment plans may offer bonuses for contributing something, anything, to a 401(k) plan.
Another way to help employees dealing with student loan debt concerns may be through their Employee Assistance Programs (EAP). Most employers provide an EAP to help employees who may have emotional or mental health concerns. Some employees may want to consider assistance from attorneys who specialize in negotiating debt or payment plans, or even bankruptcy. EAP programs may be able to recommend professionals qualified in debt repayment.
Given that many employees have worked for years with their student loans in deferment, sponsors may want to remind their employees of what options are available.
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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