Back to blog
How to offer employer student loan repayments alongside your tuition assistance benefits
Does your company already have a continued education benefit? Here’s how to add student loan repayments to your benefit plan in a few easy steps.
In 1978, Congress created Section 127 of the IRS Code to allow employers to provide tax-free educational assistance to employees who were continuing to pursue an education while working. Under this section of the IRS code, employers were allowed to contribute up to $5,250 per employee per year tax-free to employees’ tuition, fees, and books.
For more than 40 years, these educational assistance benefits were limited to this level of tuition assistance until, in 2020, Congress amended Section 127 to also allow employers to contribute to their employees’ student loans as well, paving the way for employer student loan repayment benefits.
Today, roughly 47% of all employers and 80% of medium and large size businesses currently offer some form of a tuition assistance benefit (but only 8% offer student loan repayment as a benefit).
(Not sure what the difference between Tuition Assistance and Student Loan Repayments benefits are? Check out this post)
Luckily for companies with existing tuition assistance benefits, their existing educational assistance plans (also known as section 127 plans) can be easily amended and extended to include employer student loan repayments.
(If you’re looking for a provider who can handle both, Highway can help! Talk to our team to get started)
Here’s how companies currently offering a tuition assistance benefit can extend their education assistance programs to cover student loan repayments in 5 simple steps.
Companies planning to offer student loan contributions to their employees will want to think about how much they’d like to contribute to their employees’ student loans on a monthly and/or annual basis. To max out the tax-free benefit each year, companies can contribute up to $437.50 per month to each employees’ student loans, but smaller monthly contributions (e.g. $50, $100, $200, etc) will still have a significant impact.
Once the federal payment pause ends, the average student debt holder will make a payment of around ~$400 each month. By offering even as little as $50 each month, companies can help accelerate employees’ payoff schedules and save them hundreds to thousands of dollars on interest and principal payments.
Section 127 of the IRS Code allows employers to provide up to $5,250 in tax-free educational assistance to each employee every year. Unfortunately, this is a total limit.
This means that employees cannot receive more than $5,250 combined across both tuition assistance and student loan repayments and still have it be considered tax-free. Companies can absolutely provide more than $5,250 per employee per year in educational assistance if they wish, but the excess benefit will be treated as additional income and subject to payroll and income taxes.
If they want to stay within the tax-free limit, companies will need to make sure that the total amount that each employee receives in tuition reimbursement and student loan contributions each calendar year is not greater than $5,250.
If they want to stay within the tax-free limit, companies will need to make sure that the total amount that each employee receives in tuition reimbursement and student loan contributions each calendar year is not greater than $5,250.
Once they’ve figured out how much they’re going to contribute to each enrolled employees’ student loans each year, companies looking to add student loan repayments to their educational assistance plans may want to think through any additional eligibility criteria related to the new benefit.
Will only certain employees qualify for this benefit? Will contribution amounts change depending on how long an employee has been with the company? Do you want to put a maximum lifetime limit on how much an employee can receive?
When it comes to customizing 127 plans, companies have a lot of flexibility which can allow them to create an impactful and prescriptive benefit that will help them tackle their talent goals. Just be careful not to favor highly compensated employees.
If you’re not sure where to start with your customization options, our team can help walk you through your plan options. Schedule a call with our team for more help.
You’ve got your contribution amounts, you’ve got your eligibility criteria, now it’s time to formally amend your educational assistance plan to include student loan repayments.
To offer student loan repayments as a benefit, companies must add the benefit to their written educational assistance plan. Companies should be sure to specify who qualifies for the benefit, what eligibility criteria employees must meet to receive the benefit, and how much they’re eligible to receive in the company’s written plan.
Once the benefit has been formalized, the last step is to announce the new benefit. Companies should share the good news with their employees and let them know how to enroll in the new student loan repayment benefit and become debt free sooner!
–
If your company already has an educational assistance benefit in place, our team at Highway Benefits can help you modify your existing written plan to include employer student loan repayments.
Our turnkey platform makes it easy to set up and administer employer student loan repayments alongside existing tuition assistance programs. Schedule a call with our team today to learn more!
.png)
.png)
