Many employers have taken action to address the financial well-being of their employees, and one of the most popular benefits companies have either expanded or begun to offer is student loan repayment assistance in addition to tuition reimbursement programs.
The Consolidated Appropriations Act of 2021, signed into law by then-President Donald Trump on December 27, 2020, allows employer-provided student loan repayment to be a tax-free benefit to employees for five additional years, extending the CARES Act relief first made available in March 2020.
This means that through December 31, 2025, employers can choose to make tax-exempt annual contributions of up to $5,250 per employee toward eligible education debt. The funds allocated for this student loan assistance do not count toward an employee's gross taxable income.
How Do Employers Provide Student Loan Repayment Help?
The $5,250 limit is the maximum amount per employee that employers may contribute toward repayment of student loans taken out for tuition and related expenses such as fees and books, as spelled out under Section 127 of the federal tax code.
Typically, employers match payments annually or set a lifetime cap. For example, one company matches employee payments up to $2,500 per year, while another caps student loan payment assistance at $10,000 per employee. Employers can contribute as little or as much as they want, they are taxed when the amount exceeds $5,250.
Our Company Paused Student Loan Payments Under CARES Act Relief. Now What?
Through the most recent extension of coronavirus-related economic relief, the U.S. Department of Education now allows most federal student loan borrowers to pause payments through September 30, 2021, without interest accruing on their debt. Extending the reprieve beyond the previous deadline to January 30, 2021, was one of the first actions taken by President Joe Biden's administration.
However, even if you opted to accept the automatic pause, employers can still make payments on student loans. Those payments would be applied directly to the loan's principal after all the interest that accrued before March 13, 2020 – and fees on any defaulted loans – have been paid.
What Are the Tax Implications?
As stipulated by the relief package in December, employers can make tax-free contributions of up to $5,250 a year to their employees' student loan debt. That means neither the company nor the employee will have tax liability for the money applied to student loan payments.
How Long Will This Benefit Be Available?
The provision for employer student loan repayment assistance will end December 31, 2025. Some student loan experts anticipate that the federal program will be extended beyond that, possibly becoming permanent.
Companies that offer student loan repayment plans make payments to the loan servicer or directly to the employee. Depending on the employer, you may need to work at the company for a certain number of years or have successfully completed a degree to qualify. However, some companies help employees pay back student loan debt even if they didn't graduate and there may be no tenure requirement.
ASE member, Edcor, offers the Freedom™ solution for student loan repayment. The programs pays the loan holder/servicer directly on the client’s behalf. Edcor helps design a strategic benefit policy to achieve organizational goals, automate it, and manage the day to day moving forward. For more information visit them at www.edcor.com. Their 2020 Annual Benchmark Report has also been made available to ASE members.
According to ASE’s 2021-2022 Michigan Policies & Benefits Survey, available to ASE members in their ASE Member Dashboard, just over 69% offer some form of tuition reimbursement.