Employers Can Offer New Student Loan Perk Through 2025

Human Resources recruiting new employees, COVID-19 pandemic

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Employers given a tax incentive to pay their workers’ student loans during the pandemic now have five more years to offer the perk, thanks to a provision of the new economic relief bill.

Before the COVID-19 pandemic, the only educational fringe benefits an employer could offer on a tax-exempt basis were things like reimbursement for tuition or books, not student loan debt. But that changed in March when the first major pandemic relief bill, the CARES Act, expanded the definition of educational assistance to include student loans through Dec. 31, 2020. Now the latest relief bill, signed into law on Dec. 27, extends that tax-break through 2025.

Key Takeaways

  • A tax break that encourages employers to pay their employees’ student loans has been given a five-year extension in the new pandemic relief bill.
  • Student loan payments are an increasingly popular fringe benefit, including with big employers such as Google.
  • Student debt advocates say this form of relief misses unemployed and underemployed borrowers who need help the most. 

The expanded scope of the tax break is a win-win, with $5,250 a year in educational expenses—either student debt, traditional expenses, or a combination—exempt from both employment taxes on the company’s end and income taxes on the employee’s side.

“By extending this benefit for five years instead of one, Congress is essentially communicating to large employers that this benefit will be permanent,” wrote Travis Hornsby, founder of Student Loan Planner, which has consulted on more than $1.2 billion in student debt. “I expect an explosion of employer student loan assistance programs as a result.”

Even before it became tax-free, student loan repayment was an increasingly popular benefit among companies, particularly those seeking to recruit young workers. The share of employers offering student loan repayment assistance doubled in 2019 to 8%, according to a survey by the Society for Human Resource Management, a business group that had lobbied to make the benefits tax-free.

Google is part of the growing trend, announcing in September that it would match up to $2,500 of U.S. employees’ student loan payments per year starting in 2021.

Despite the extended tax break, broader student loan relief measures were notably absent from the latest relief bill. While payments and interest on federal student loans have been frozen through January, student debt advocates had hoped to see a forbearance extension as well as outright debt forgiveness to help borrowers struggling in the pandemic economy.

Seventy-seven percent of federal student loan borrowers do not feel financially secure enough to resume payments until June 2021 or later, according to a December poll of more than 58,000 student loan borrowers conducted by the nonprofit advocacy group Student Debt Crisis.

“Creating a policy that provides tax relief for businesses who are paying off the student loans of employed borrowers—at a time when millions of Americans are facing an unprecedented level of unemployment and lost hours—it fails to get at the heart of the crisis that many people are facing right now,” said Cody Hounanian, program director of Student Debt Crisis. “This is something that is designed to help people who have relatively high paying jobs that work for large corporations.”