Debt Weighs Heavy on Plan Sponsors, Employees

No holistic assessment of financial wellness can happen without placing debt on the scale.

On July 11, a federal judge in Texas granted a request from the administration of President Donald Trump to scrap regulations adopted during the final days of former President Joe Biden’s presidency that would have removed $49 billion in medical debt from nearly 15 million consumers’ credit reports.

On August 1, interest accrual resumed for the 7.7 million borrowers who participated in the Saving on a Valuable Education Plan, an income-driven student loan debt relief program struck down by the U.S. 8th Circuit Court of Appeals in April. The resumption came less than three months after the U.S. Department of Education resumed collections of its defaulted student loan portfolio, ending a payment pause that began at the onset of the COVID-19 pandemic in March 2020.

Meanwhile, the Federal Reserve Bank of New York announced Tuesday that total household debt levels rose in the second quarter of 2025 to $18.39 trillion, up $185 billion from the prior quarter. Student loan woes rose “sharply,” with some 10.2% of student borrowing now delinquent by 90 days or more.

“For employers, this isn’t really just a credit issue,” says Todd Lacey, president of Financial Finesse. “It’s a wellness issue.”

Impact on Lower-Income Workers

Lacey sees the negative consequences of compounding debt affecting lower-income workers in particular, as does Timothy Flacke, co-founder and CEO of Commonwealth, a nonprofit focused on building financial security among financially vulnerable populations.

“In industries that are employing a lot of low- and moderate-income workers, we have a cocktail there that can make for a very challenging environment for those workers in the coming year and years,” Flacke says. “The very likely consequence is that it will be more expensive for people to borrow or [to manage] a debt they carry.”

Flacke adds that the more financial strain employees face, the more difficulty they have doing their jobs. He says this is not only a worker issue, but an employer issue, as well.

Employees “might show up at work, but they’re not their full selves. And not only does that put a drain on productivity, but … if the cost of your medical care is unaffordable, you’re not going to follow the medical care of the regimen that’s been prescribed,” says Lacey. “As a result, the care that might have improved your physical health may get put off to the side.”

Lacey adds that the implications of household debt on employers and employees are interrelated.

“Higher costs for medical care mean that I might not accept the care that I need,” Lacey says. “Then that can create medical conditions—acute medical conditions—that then cost the employer more in the form of insurance premiums.”

The domino effect may drive employees to seek assistance not from the government, but from their employers.

“We’re at a period of moving from perks to protections,” says Laurel Taylor, CEO of Candidly. “Plan sponsors have the opportunity to offer proactive solutions [for employees’ debt relief].”

Looking to Employers for Assistance

Forty percent of those individual employees surveyed in Commonwealth’s 2024 “The Hidden Burdens of Student Debt and Employer Provided Solutions” said student loan repayment benefits were very or extremely important to their overall employer-sponsored benefits. When asked to rank the three benefits in which they would be most likely to participate if offered by their employer, 60% of respondents selected student debt relief, while only 47% selected an employer-sponsored retirement plan, such as a 401(k).

Commonwealth’s Flacke says there are multiple roles an employer can play in helping its employees manage debt, including those which “don’t necessarily hold an enormous price tag.”

“When an employer says, ‘Here’s a resource, here’s information,’ … it kind of legitimizes that this is something worth paying attention to,” says Flacke. “[Debt] is a priority item … so there’s a lot of goodwill and a lot to be harvested and valued by including that in your benefits strategy.”

What Can Employers Do?

Tom Armstrong, vice president of customer analytics and insight at Voya and head of the Behavioral Finance Institute for Innovation, says there is a “big opportunity” for employers to prioritize student loan debt support in the coming year.

“These kinds of benefits don’t just help employees feel more financially secure; they also help companies attract and retain talent in a competitive market,” wrote Armstrong in an emailed response to questions. “The impact is measurable. One employer we worked with saw 35% of participants who took advantage of their student loan debt program increased retirement savings—going from 6% to 7% of pay. That’s a meaningful shift, and it shows how the right support can help employees balance today’s financial challenges with tomorrow’s goals.”

In Commonwealth’s “The Hidden Burdens of Student Debt and Employer Provided Solutions,” 19% of respondents stated that, due to their student loan debt, they have tried to leave their job for another that offered higher pay or better workplace benefits. Additionally, 30% said they needed to work additional jobs or overtime hours for the same reason. One job with benefits might not be enough in today’s world, the report indicated.

Greg Ward, director of Financial Finesse’s financial wellness think tank, says employee engagement in benefits is critical: Without it, the benefits are “worthless.”

“It’s the awareness of the executives and the HR professionals that these [debt] conditions exist and that there’s stress in the workforce,” says Ward. “It’s not just about giving the tools and the resources, but [also getting] the employees to engage in these benefits.”

Ward says there are three actions employers can take to help employees utilize debt-related benefits: (1) create a culture of wellness; (2) have “local champions”—examples of colleagues who have had success using the benefits; and (3) incentivize employees to use their benefits.

“Creating a culture of care goes a long way into building trust and encouraging employees to actually engage in these benefits that these employers are investing in,” Ward says. “There is a barrier, there is friction to that initial engagement—but once you get over that … the re-engagement just escalates exponentially.”

Voya’s Armstrong notes that federal legislation has helped employers offer student debt repayment options.

“We’re seeing employers explore changes to federal student loan repayment options and employer repayment exclusions as a new opportunity to support their teams,” Armstrong said in his emailed statement. “One standout opportunity is the ability for employers to offer up to $5,250 annually in tax-free student loan repayment benefits, [from Section 127 of the Internal Revenue Service Code], which was initially enacted with the passage of the CARES Act as a temporary relief measure expiring at the end of 2025 but made permanent with recent legislation.”

Armstrong says other employer tools recently added include the ability to match employees’ student loan payments with retirement plan contributions. Enabled by the SECURE 2.0 Act of 2022, this approach allows employees to reduce debt while continuing to build long-term savings—eliminating the need to choose between the two.

Candidly’s Taylor agrees the federal initiatives have helped.

“It’s really regulatory change and smart policy … that’s enabling employers to be able to adopt [student debt relief programs],” Taylor says. “Before there was tax-advantaged treatment, employers were sitting on the sidelines, because they are only going to offer benefits that have parity from a tax-advantaged profile.”

Commonwealth’s Flacke indicates an employer’s role can largely be educational.

“What do workers who are carrying student debt, who may already be in default or who may be on the precipice of going in default … need to know?” asks Flacke. “Do they understand where to get good information? Are they aware that their employer can help with payroll deductions, for example, to automate payments?

Like Armstrong, Flacke also sees providing student-loan related benefits as an opportunity to attract employees—or a challenge to retaining them.

“For employees with student loans, better financial benefits elsewhere—including those specifically related to student debt—are a factor in a decision to leave an employer,” says Flacke.

He points to a 2021 survey by Betterment at Work, which found that 74% of respondents would be likely to leave their job for an employer offering better financial benefits. Among these, 24% overall—and 49% of Gen Z respondents, born between 1997 and 2012—noted that student loan financial assistance or repayment programs could entice them to make such a change.

Financial Finesse’s Lacey says there is no “shortage of tools” an employer can offer. The key, however, is deploying an effective strategy.

“We’ve thrown information at people, we’ve thrown tools at people, and we expect them to figure it all out,” Lacey says. “It’s very difficult for most people to figure it all out without an organization or a platform or a strategy that pulls it all together.”