Student Loan Repayment Benefits Get a Boost from the Pandemic
February 1, 2021
Looking for ways to attract talent, some employers saw the student loan debt challenge as a potential recruitment tool and began offering student loan repayment assistance. Historically, the benefit has not been overwhelmingly popular with employers.
According to ASE’s 2018 Educational Assistance and Tuition Reimbursement Survey just 2% of companies provide some form of student loan repayment program to its employees. However, employer-provided student loan repayment assistance may have received a big boost with the unprecedented pandemic related stimulus measures passed in 2020.
Data from the Federal Reserve points to a clear rationale for the assistance. 54% of young adults who went to college took on some debt, including student loans, for their education. More troubling is the fact that two in 10 of those who still owe money are behind on their payments.
The CARES Act passed in March of 2020, suspended student loan payments until September 30, 2020, without penalty or interest for all federally owned loans. The loan relief program has been extended multiple times, and most recently, the Biden administration extended the pause on federal student loan payments and collections through the end of September 2021.
There have been other measures, passed as part of pandemic stimulus programs, whose aim is to ease the burden of student loan debt. Again, data from the Federal Reserve shows that of those individuals making payments, they typically range from $200 to $299 per month.
The CARES act also temporarily expanded Section 127 of the Internal Revenue Code to permit employers to make tax-free payments of up to $5,250 during calendar year 2020 towards employees’ qualified federal and private student loans.
Historically, employers have been allowed to make tax-free payments of up to $5,250 per year under an education assistance program towards an employee’s qualified educational expenses, but not student loan repayments. It is important to note that this benefit is available to existing employees as well as prospective employees who may have outstanding student loans.
The Consolidated Appropriations Act extended the provision of the law through December 31, 2025. Now, employers may pay employees up to $5,250 per year towards qualified educational expenses, student loan repayments (both principal and interest), or a combination of both –tax free – until December 31, 2025. It should be noted that payments must be for a qualified education loan incurred for the education of the employee not the employee’s spouse or children.
The extension through 2025 should give employers greater flexibility to offer the benefit once the pandemic has faded and employers find themselves on stronger footing financially.