With Student Loan Payments Resuming, How Should Plan Sponsors Respond?

The federal debt ceiling deal brings, along with avoiding U.S. government default, the end of the pause on student loan payments, which had been in effect since March 13, 2020, but is set to expire on August 29. 

Given that many employees will soon have to face the financial reality of again paying off federal student loans, plan sponsors have an opportunity to relieve some of that burden by offering student loan benefits, such as the new matching provision outlined in the SECURE 2.0 Act of 2022. 

“Now is the perfect time to be thinking about strategies to help reduce the stress caused by that student loan burden,” says Barrett Scruggs, vice president of SoFi at Work. “On the one hand, plan sponsors have not had to think about student debt-related stress because their participants have not been, for the most part, having to make payments on their federal loans. That is all changing.” 

Scruggs says many student loan borrowers have not improved their overall debt burden during the payment moratorium and have actually racked up more debt, typically across credit cards and auto loans. He adds that plan sponsors need to be connecting with their recordkeepers to understand what student loan benefits are available, and he argues that the matching provision in SECURE 2.0 is “simple to implement” and can help participants with their student debt-related stress. 

SECURE 2.0 Options Available for 2024 

SECURE 2.0 offers employers an optional retirement plan provision to make retirement plan contributions to 401(k), 403(b), 457(b) and SIMPLE IRA accounts if the participant elects to pay down student loans instead of contributing to a retirement plan. Employers do not need to independently verify that the loan payments are being made; employees will be allowed to self-certify. This option is available starting on December 31, 2023. 

SoFi at Work, a financial well-being and education assistance benefits provider, announced Thursday the launch of its new Student Loan Verification service—a program that could help plan sponsors make the most of the SECURE 2.0 matching provision.  

SoFi argues that SLV “simplifies the process of linking matching employer retirement contributions to employee student loan repayments.” 

“SLV helps the workforce make the most of retirement plans through [employer] 401(k) or 403(b) contributions, while still paying down student loan debt,” a press release stated. “As the cost of education has skyrocketed, student loan debt has more than doubled over the last 20 years, [and] its impact on retirement savings has grown, too.” 

SLV is part of SoFi’s holistic financial well-being platform, called the SoFi at Work Dashboard, which includes a variety of tools for employees, including a debt navigator, refinancing options and financial education resources.  

Student Debt Relief Outside of SECURE 2.0 

David Amendola, senior director and intellectual capital leader for benefits advisory and compliance at WTW, points out that the SECURE 2.0 provision does not directly reduce an employee’s student loan debt using employer dollars, because the match goes toward their retirement savings. 

“But what it does indirectly is it allows an employee to still get that matching retirement contribution while they’re paying off their student loans,” Amendola says. “In theory, if [an employee] is struggling, they can divert some of the money that they may be deferring in order the get that [401(k)] matching contribution to pay off student loan debt.” 

Amendola adds that in addition to the SECURE 2.0 provision, there are other direct benefits employers can offer. For example, an employer could provide a contribution of $100 per month to eligible employees with student loan debt, and they can provide a lifetime maximum of up to $10,000. 

“That’s a really impactful benefit because it’s sort of piggybacking on the employee’s own repayments,” Amendola explains. 

The biggest downside to this repayment benefit is that it can be costly for larger organizations that have many employees with student debt.  

Another potentially valuable student loan benefit is the income-driven repayment program offered by the government, called the Revised Pay As You Earn Plan. REPAYE bases a borrower’s student loan payments on their gross income and family size. Borrowers who do not pay off their loans in full by the end of their repayment term can receive student loan forgiveness on the remaining balances.  

Amendola says the administration of President Joe Biden is working on finalizing the regulations that were proposed in January, and he believes the changes to the program can be “really impactful.” 

“Once the new program is launched by the Biden Administration, I think it could be incredibly helpful, because it can really lower an employee’s monthly student loan payment, get them on a path to quicker loan forgiveness and eliminate the interest that potentially accrues when they’re making monthly payments,” Amendola says. 

Meanwhile, Biden’s plan to cancel up to $20,000 in student loan debt for 40 million eligible borrowers is expected to be ruled on by the Supreme Court before the end of June. The Senate approved a House resolution last week to repeal the student loan forgiveness plan, but Biden has vowed to veto the decision.  

Dave Stinnett, head of strategic retirement consulting at Vanguard, adds that the IRS, through the Consolidated Appropriations Act, allows employees to receive up to $5,250 per year, tax-free, for qualified educational expenses, essentially offering a grant to pay down student loans. This offer is available through December 31, 2025, and the annual amount is considered separate from an employee’s regular wages. However, payments beyond this may be subject to payroll taxes.  

“A lot of employers use [this], and it has been seen as very helpful in attracting and retaining employees, because it’s a benefit that’s very important, especially to younger workers,” Stinnett says.  

How Recordkeepers Can Help 

Stinnett says when Vanguard works with plan sponsors who want to implement student loan benefits, his team asks a variety of questions to understand the employer’s ultimate objective. 

He explains these objectives can range from creating a recruiting tool to attract and retain talent to helping employees contribute more to their 401(k)s while paying off debt. 

Vanguard is able to provide data to plan sponsors to better determine the economic ramifications of a plan sponsor offering student loan benefits. For example, Stinnett says Vanguard can analyze workers who are in their 20s and 30s and provide their retirement plan participation rates and savings rates. 

“If their participation rate is strong and no different from older workers, [a plan sponsor] might still want to offer this benefit, but it’s less urgent to do so,” Stinnett says. “It’s different if younger workers aren’t joining the plan. Then maybe it’s more urgent and you would want to move fast and offer this.” 

Stinnett finds that most plan sponsors are currently more focused on implementing the mandatory features outlined in SECURE 2.0 than the optional student loan matching provision, but he says many are curious and want to understand how it can be implemented from an administrative standpoint. 

Vanguard also offers its own student loan debt program in partnership with Candidly—an AI-driven student debt and savings optimization platform. The student loan debt management services developed by Candidly are integrated into Vanguard’s participant website. 

The platform helps borrowers find a repayment plan that fits their budget. According to Vanguard, by helping eligible employees determine whether they qualify for government-sponsored repayment plans, it saves users an average of $326 a month. 

In addition, the platform’s refinance service helps borrowers explore how to lower their interest rate or monthly payments across a multilender marketplace. The platform’s Public Service Loan Forgiveness module also helps borrowers certify, manage and track their progress toward PSLF, a federal program that can erase student debt after 10 years. 

Fidelity also offers a student debt direct payment benefit option for employers, as well as a student debt retirement match option that they work with plan sponsors to implement.

Employers who offer Fidelity’s student debt direct benefit have seen a 78% reduction in employee turnover, said Jesse Moore, senior vice president and head of student debt at Fidelity, in an emailed statement.

“We offer this benefit to our associates here at Fidelity and more than 50% of our new hires with student debt claim the student debt benefit was a major factor in their decision to join the company,” Moore said.

Overall, Amendola believes the resumption of student loan payments will have a “huge impact” on employees, especially those who have just entered the workforce in the last three years and have not had to make a loan payment yet.  

“Now [payments are] going to start up and their monthly incomes are going to be dramatically reduced, and I think it’s going to be pervasive,” Amendola says. “You’re going to have all these employees that now suddenly are in a much tougher position. … As an employer, this is a real opportunity to very directly help employees in a way that can be super impactful, not only to their day-to-day living, but also to how productive they are as an employee and potentially how loyal they may be to that organization … helping them through a really challenging period.”