Student loan borrowers are experiencing increased financial stress, as 9.7 million borrowers have become past-due on their payments since the COVID-19 payment pause ended in 2023, according to new data from the Federal Reserve Bank of New York.

While the Trump administration has taken actions to limit access to public student loan forgiveness over the last few weeks, plan sponsors still have an opportunity to help their employees pay off their student loan debt through different programs.

More than 55% of plan sponsors responding to PLANSPONSOR’s 2024 Defined Contribution Survey reported offering a benefit to assist their employees’ with the cost of higher or continuing education costs.

Consequences for Late Payments

Starting this year, borrowers who have not started making payments or repayment arrangements on their federal loans are being reported as delinquent to credit reporting agencies. After payments resumed, the volume of past due federal loans quickly returned to pre-pandemic levels and reached a new high of 15.6% by the end of the on-ramp period, with more than $250 billion in delinquent debt owed by the 9.7 million borrowers, according to the New York Fed.

Rich Williams, former deputy assistant secretary of policy, planning and innovation at the Department of Education, and now the chief customer officer of Summer, a student loan and education assistance platform, says this delinquent debt will make borrowers’ financial lives “more difficult in every aspect,” which will also be felt by their employers.

“Those borrowers will be taking time out of their day to think about how to manage their debts,” Williams says. “The paycheck they receive may not go as far, because it has to go to higher [debt] payments if their credit score is impacted.”

Later this year, Williams says if borrowers still do not make repayment arrangements, there are further consequences, like involuntary collections, where the government could take borrowers’ wages by permission of their employer.

Challenges Posed by Trump Administration

Meanwhile, President Trump has signed an executive order dismantling the Department of Education, and the administration has plans to cut about half of the department’s staff. The president also announced last week that the Small Business Administration, instead of the DOE, would handle the country’s $1.6 trillion federal student loan program going forward. However, Williams says Congress likely would need to approve the plan, which means nothing is changing for borrowers right now.

Williams says borrowers will likely have fewer opportunities to get support or answers to repayment question, because of the offices that are closing, which can result in longer call wait times, less frequent federal updates and a higher risk of loan processing delays and errors as they make payments. At Summer, Williams says the vendor is advising borrowers to back up their repayment data in anticipation of some of those delays and errors.

President Trump also recently signed an executive order that orders rule changes to the Public Service Loan Forgiveness program in order to limit PSLF eligibility for organizations the administration determines are engaged in activities that have a “substantial illegal purpose.”

Williams explains that the executive order kicked off a multi-year review of employer eligibility for the PSLF program, but he says changes will not happen immediately. Because it is a multi-year process, he says the earliest that changes would go into effect is the summer of 2027, if ever, because there will also likely be legal challenges.

Student Loan Matching

Summer, as well as other student loan repayment benefit providers, have begun offering services that help employers implement the student loan matching provision created as part of the SECURE 2.0 Act of 2022. The optional provision allows employers to offering a retirement plan matching contribution to employees who are making qualified student loan payments.

Recent research from Candidly, a student loan benefit provider, found a 13.5% increase in first-time participation in student loan matching programs in 2024.Williams says nothing has changed with the setup of the student loan matching benefit or the ability of providers, including Summer, to offer it.

“Employers [that] have offered this benefit are well-positioned to help support their employees navigate this very stressful time, and employers that don’t offer this program should consider it as a way to boost retention, stay competitive and help reduce that debt, [and] stress that employees could have, which could distract from their daily work,” Williams says.

He adds that Summer helps employers verify that employees have made a contribution to their student loan payments, and the vendor helps with the recordkeeping involved. Under SECURE 2.0, participants are able to self-certify their student loan payments in order to receive a match in their retirement plan.

Status of Income-Driven Repayment Plans

this week, the Trump administration reopened online applications for the income-driven repayment plan and loan consolidation for borrowers. This application process was temporarily paused to comply with an 8^th Circuit Court of Appeals injunction, issued last month, which directed the DOE to cease implementation of the Biden Administration’s Saving on a Valuable Education Plan and parts of other income-driven replacement plans.

Williams says the DOE reopened applications to three kinds of IDR plans. The department is not yet processing applications, but that is expected to resume in a couple of weeks. In general, Williams says this is a net positive and he hopes that borrowers, in the next few months, who wish to change to an IDR plan are able to do so and get quicker processing by their servicer.

“For employers that partner with companies like Summer to help their employees navigate these programs, these [changes] really didn’t affect them, because those borrowers were likely already on an income-driven repayment plan that was best suited for them,” Williams says. “Where it really created problems were borrowers who hadn’t been taking any actions on their student loans over the past couple years and were quickly trying to do so as credit reporting challenges have started.”

More information on student benefits can be found here:

Video: PLANSPONSOR Roadmap: SECURE 2.0 – Student Loan Matching and Educational Benefits

Article: PLANSPONSOR Roadmap Series: Student Loan Matching and Educational Benefits