Employer student loan repayments as a benefit

Wondering what an employer student loan repayment benefit is? We break it down so you can decide if offering employer student loan contributions is right for you.
The Highway Team
The Highway Team
February 15, 2024
April 20, 2022

Post Summary

What is an employer student loan repayment benefit? 

An employer student loan repayment benefit–sometimes also called “employer tuition assistance,” “employer student loan contributions,” “employer student loan repayment assistance,” or an “employer student loan match”–is a type of company-sponsored benefit plan offered to employees in the United States that allows companies to pay back a portion their employees’ student loans on their employees’ behalf. 

Put Simply: It’s a benefit that lets employers help employees pay off their student loans. 

With a student loan repayment benefit, employers can either help cover some (or all) of an employee’s minimum monthly payment or help pay down the employee’s student loan principal faster, potentially saving employees thousands of dollars in accrued interest over time. 

Employer student loan repayments have gained popularity in recent years, thanks to certain provisions in the 2020 CARES Act and subsequent Consolidated Appropriations Act of 2021. Under the new laws, certain employer student loan repayments may be tax-free for the employee and the employer, creating a win for everyone!  

A Bit of History…. 

Unless you’ve been withdrawn from society for the past few years and have been living your best secluded artisan life high up in the mountains as far away from people as possible (in which case, I envy you, I truly do), you probably remember how the Coronavirus sparked alarm at the end of 2019. It then rapidly became a global pandemic by the beginning of 2020, sending multiple countries into lockdown and briefly causing the global economy to nosedive into the worst recession we’ve seen since the Great Depression.  

In response to that dark period of turmoil and economic uncertainty, the United States Congress passed the CARES Act (Coronavirus Aid, Relief, and Economic Security) in March 2020, hoping to buoy the freefalling US economy. Luckily for holders of student loan debt across the US, the CARES Act also included a temporary tax-free provision for certain employer student loan repayments; Section 2206 of the CARES Act expanded an existing provision for tax-free employer-sponsored educational assistance to also include employer student loans until the end of 2020. This was later extended until December 2025 by the 2021 Consolidated Appropriations Act. (Thanks, Congress!)   

So how do employer student loan repayments work? 

There are many ways employer student loan repayments could work, but the most tax-advantaged way for companies to provide student loan repayments to employees is to set up an educational assistance benefits program that is compliant with Section 127 of the IRS tax code. 

Under Section 127, employers can offer up to $5,250 per employee per year as a tax-free benefit as long as employers: 

  • Have a written educational assistance plan (a.k.a. a “127 plan” or “127c plan”) 
  • Notify all employees about the plan
  • Do not discriminate in favor of highly compensated employees 
  • Do not allow company owners to to receive more than 5% of the total benefit
  • Do not allow employees to swap or choose other taxable benefits instead of the educational assistance benefit 

Ooh tax compliance… It sounds scary, but it’s not. Providers like Highway Benefits help companies set up their 127 plans and ensure their benefits programs stay tax-compliant. Highway can also save companies the headache of managing payments by making sure that employer contributions are automatically deposited directly into individual employee’s student loan accounts. 

Are all employer student loan repayments tax-free and tax-deductible? 

As long as a company’s student loan repayment benefit program adheres to the rules outlined in Section 127 of the IRS tax code, the student loan repayments issued each year by the company are considered tax-free income for the employee and a tax-deductible expense for the company. 

$5,250 per employee per year is the maximum tax-advantaged amount an employer can give (which works out to a maximum contribution of $437.50 per month) but companies don’t have to give the full amount per employee. Even $50 or $100 per employee per month would go a long way towards helping employees with their student loan and would still qualify as a tax-free payment. 

Of course, if a company decides they want to pay more than $5,250 to each employee’s student loan account every year, 1) that is incredibly generous of them and 2) they can definitely do so but they won’t receive any tax benefits on the excess payments. Still, it’s entirely their call and, if companies want to help tackle the $1.8 trillion student debt problem this way, more power to them!  

Why should companies offer student loan repayments as a benefit? 

Employer student loan repayments are now a new tax-advantaged benefit for both employers and employees. Beyond those tax-advantages though, companies should consider offering student loan repayments as a benefit because this unique benefit offering could be a powerful tool for recruiting, engaging, and retaining top talent. 

According to an American Student Assistance (ASA) survey, 86% of employees would commit to a company for five years if an employer helped pay back their student loans.  

By helping pay down student loans, employers can significantly improve their employees’ financial health, engagement, productivity, and performance. Student loans are a significant source of financial stress and as a SHRM study found, 80% of employers reported that financial stress lowers employee performance and productivity, which can cost employers an estimated $500 billion annually. 

Finally, student loan repayments as a benefit can also be an important tool for fostering Diversity, Equity, and Inclusion in your workplace as student loans disproportionately impact underrepresented minorities.  

What if not everyone in a company has student loans? 

While it might seem weird to offer a benefit that not everyone will participate in, the reality is that participation rates in fringe benefits often vary anyway. Consider for example: 

  • When offering commuter benefits, not everyone in a company may choose to take advantage of it because of their preferred mode of transportation
  • When a company offers retirement benefits, not everyone will be able to take advantage of a retirement program due to their own financial constraints. Actually, in 2019 alone, an estimated 56% of adults age 18 to 29 in the US delayed saving for retirement because of student loans

Every employee’s situation is unique and while not everyone has student loans, those who do (and even some who don’t) will thank you for offering this benefit. 

To help address fairness concerns, companies can also offer tax-free tuition reimbursement alongside their student loan repayment benefit.

How can companies start offering a student loan repayment benefit for employees today? 

Setting your company up with a student loan repayment benefit for employees is a quick, simple, and painless process with Highway Benefits. We know that your time is precious so we’ve designed our product to be as easy to implement and manage as possible. With Highway, your company can create and launch a benefits plan in less than a week!

If you’re an employer who is interested in offering this benefit to your company, schedule a call with us today to learn more about how Highway can help.

If you’re an employee who would like your company to consider adopting student loan repayments as a benefit for employees, send us a note and we’ll reach out with more information for you and your company. 

Finally, if you’re a broker or company interested in partnering with Highway, we would love to explore options of working together. Please contact us for a demo to discuss partnership opportunities.

The Highway Team

The Highway Team is on a mission to spread knowledge about student loans, the state of the student debt crisis, and impactful benefits like employer student loan repayments. We're here as a helpful resources so drop us a line anytime. Find us on all the major channels as @highwaybenefits

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