Your Employer Can Now Contribute Annually Towards Your Student Loans Tax-Free Until 2025

Historically, student loan repayment assistance programs for employees weren't common. In 2019, just 8% of companies offered one, according to a survey by the Society for Human Resource Management.

But in 2021, 17% of employers offered the benefit to their workers, according to a survey by the Employee Benefit Research Institute, and 31% more plan to add the program to their benefits packages.

Why has there been such a large increase? Because the federal government provided a huge incentive for employers to focus on the benefit, making it more attractive than ever before for both employers and employees.

How Student Loan Repayment Assistance Programs Work

Traditionally, student loan repayment assistance programs involve an employer making payments directly to a student loan servicer or lender or even to the employee, helping workers pay down their student loan debt.

However, some companies have gotten creative, offering retirement plan contributions for those who pay a certain percentage of their income toward student loans, stock awards employees can sell to pay down their debt and more.

But historically, student loan repayment assistance has been treated the same as employee compensation. In other words, it's been taxable to the employee. In contrast, American workers have long enjoyed up to $5,250 in tuition assistance every year and not had it count toward their taxable income.

How the CARES Act Changed Employer Student Loan Repayment Assistance Programs

The Coronavirus Aid, Relief and Economic Security (CARES) Act included some provisions for student loan borrowers. For starters, because the Department of Education holds 88% of all federal student loans, Congress included a provision halting federal student loan payments and collection attempts on covered loans. 

Additionally, interest would not accrue on federal student loans for a set period. That benefit was initially set to expire at the end of September 2020 but was extended several times. Currently, it's set to expire on May 1, 2021, and there's no indication that the Biden administration will extend it again.

Additionally, the CARES Act included a provision allowing employers to offer up to $5,250 in tax-exempt student loan repayment assistance to their employees through the end of 2020.

Before that provision was set to expire, Congress passed the Consolidated Appropriations Act, extending it again.

How Long Does This Benefit Last?

Currently, the tax-exempt status of student loan repayment assistance programs will be in effect through the end of 2025. 

It's unclear whether Congress will extend it again, but considering more companies are getting on board with offering their own programs for their employees, there is a high possibility it will last beyond 2025 and potentially even become permanent. 

Can You Combine Student Loan Repayment Assistance With Tuition Reimbursement?

Employers can offer both student loan repayment assistance and tuition reimbursement to their employees. However, as an employee, the $5,250 annual limit is a combined limit. In other words, you can't get up to $10,500 between the two.

But if you're still making student loan payments for past college expenses and you're now seeking a higher degree or going through an eligible certificate program, you can combine the two. 

For example, if your company offers $2,500 in annual student loan repayment assistance, you can get up to $2,750 in tuition assistance.

Speaking of not being able to double-dip on taxes, it's also important to note that if you're receiving help from your employer to pay down your student loan debt, you can't deduct the interest your employer has paid as part of the payment assistance. 

Because student loan servicers typically don't distinguish between the two when they send out tax forms, you may need to dig into your account history to see how much interest can be attributed to your payments and how much can be attributed to your employer’s payments.

It may also be worth it to consult with a tax professional if you're not certain how to proceed with your tax return.

How Can You Qualify?

As an employee, you can qualify for student loan repayment assistance if your employer offers the benefit. Keep in mind that different employers may have different eligibility criteria for their employees to take advantage of such programs.

For example, you may need to have been with the company for a set period of time. Also note that while the annual cap on tax-exempt contributions from your employer is $5,250, many companies that offer the benefit don't come close to that amount. Some even have a lifetime limit on how much you can get in assistance.

If you're looking into employment opportunities from employers that offer this benefit, take your time to understand the fine print to help you determine which is the best fit for you.

The Bottom Line

Student loan repayment assistance programs are becoming an increasingly important way for employers to recruit and retain top talent, and they are more of a priority than ever as workers compare job opportunities.

If your employer offers student loan repayment assistance as an employee benefit, make sure you understand the requirements and the benefits, including how much you'll get and what the limits are. 

Also note that many of these programs don't offer enough to help you pay down your debt completely. So you'll want to take other steps to pay down your student loan debt as well.

One way to do so is refinancing your student loans with a private lender. Refinancing can be worthwhile if your existing loans are private loans or if you have federal loans and don't plan to take advantage of forgiveness programs or income-driven repayment plans.

If you qualify, you could be able to secure a lower interest rate through refinancing than what you're paying right now. You could also get some more flexibility with your monthly payments. 

If you're thinking about refinancing, join Juno and take advantage of lower rates. We negotiate exclusive rates and discounts for our members that they may not be able to get on their own. The process is free, and it takes only a few minutes to get started.

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Juno's Exclusive Student Loan Refinance Deals