From Debt to Retirement: Helping Employee Navigate Immediate Student Loan Repayment Laws

The state of student loans is making headlines once again, and for good reason.

After years of deferred payments and shifting policies dating back to the COVID era, the landscape is changing rapidly. Recent developments—such as letters sent to those with federal student loans in default—have reignited both awareness and anxiety among borrowers and employers alike. As repayment requirements return, it’s crucial for both employees and employers to understand the implications and strategies for navigating this new reality.

The Current State of Student Loans

Since March of 2020, federal student loan payments were paused, offering temporary relief to millions. However, with the end of these deferrals, borrowers are now facing the reality of resuming payments. This shift has brought about a new set of challenges, particularly for those in default, as employers are now required by the government to garnish wages to collect on overdue loans. This is a fundamental shift in how student loan repayment is managed in the workplace.

Employers must now ensure their payroll processes are aligned with these new requirements, working closely with vendors and communicating clearly with employees about what’s happening and why. For employees, the sudden resumption of payments—especially through wage garnishment—can be jarring and stressful.

Understanding Wage Garnishment

Wage garnishment is determined by both an employee’s income and the amount of debt owed, with the percentage withheld varying based on the type of debt and applicable federal or state laws. That percentage will then be directly taken from an employee’s paycheck. Wage garnishment for student loans is capped at 15% withholding. For many Americans, who are already living paycheck to paycheck, this can have a significant impact.

If employees don’t proactively adjust their budgets, they risk falling deeper into debt and jeopardizing their long-term financial health. While some expenses—like health insurance—can only be adjusted during open enrollment or after qualifying life events, lifestyle choices and discretionary spending are often the first to be reconsidered. Additionally, asset allocation for retirement plan contributions and health saving account contributions may need to be paused to keep fund available for debt repayment.

The Employer’s Role: Communication and Support

Employers need to be prepared for the changing landscape around their employee benefits and retirement plans. Clear, proactive communication is one of the most impactful tools employers have. By educating employees about what’s happening, why it’s happening, and how it affects them, employers can help reduce anxiety and maintain workplace productivity. Here are a few steps that you can take as an employer to help guide your employees on a path of long-term financial health.

1. Operational Readiness: Ensuring payroll systems and processes are equipped to handle wage garnishments accurately and efficiently.
2. Employee Wellbeing: Recognizing that financial stress can lead to distracted, less productive, and potentially unsafe employees, especially in environments where focus is critical. Creating mental health and financial guidance practices can make a significant impact.
3. Financial Education: A well-structured financial education program can help your employees understand the importance of managing their repayment in a way that minimizes long-term negative impacts.
4. Student Loan Repayment Programs: Employers are now able to offer assistance through student loan matching contributions that can allow employees to focus on their student loans while their employer makes contributions to their retirement plan.

Secure 2.0: A New Approach to Student Loan Repayment and Retirement Matching

Recent legislation, such as Secure 2.0, has brought valuable flexibility to employee benefits by allowing individuals to save for retirement while repaying student loans. Under the new provisions employers can implement student loan repayment programs that allow employees to make student loan payments and still receive matching contributions to retirement accounts from their employer. As a result, employees struggling with student loans can still receive retirement plan matches, even if their ability to save is limited. This integrated approach helps employees build a financial foundation, whether unexpected expenses, and ultimately save more for retirement.

Additionally, employers have the option to tailor the company’s match percentage to align with their organizational goals. By offering these incentives, companies can more effectively attract and retain younger talent, particularly those burdened by student loan debt.

Conclusion

The return of student loan repayments and the introduction of wage garnishment present significant challenges for both employees and employers. However, with clear communication, financial education, and strategic use of benefits, especially those enabled by Secure 2.0, employers can help their workforce navigate these changes and build a path from debt to retirement security. By working together, employers and employees can turn a daunting situation into an opportunity for smarter savings and a brighter financial future.

Looking for guidance on managing your retirement plan? Explore our Fiduciary Academy page for a wealth of resources and insightful webinars, all designed to help you confidently and effectively manage your plan.

Investment advice offered through OneDigital Investment Advisors LLC.

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