New Student Loan Legislation Helps Your Employer Pay Your Debt
You may have seen recent headlines about the hottest new employee benefit since the 401(k): student loan assistance. Whether it’s helping employees pay student loans or subsidizing an interest rate discount on student loan refinancing, a growing number of employers are offering some kind of student debt assistance as a tool to recruit and retain talent in today’s competitive job market.
What you may not know is that, beyond recruiting, your company doesn’t have a lot of incentive to offer a student loan benefit to you—at least right now. That’s because when companies help out with student loans, that assistance has a much different tax treatment than the 401(k) benefit.
Employer 401(k) contributions are generally tax-deductible for the company and tax-deferred for the employee (meaning employees don’t pay taxes on that amount until they take the money out at retirement). In the case of student loan assistance, not only is the employer’s contribution not tax-deductible for the company, it’s actually taxed as income for the employee. This makes it less attractive for companies to offer a student loan benefit—and less beneficial for their workforce when they do so.
Fortunately, a recently proposed student loan bill could change that.
The “Employer Participation in Student Loan Assistance Act” (also known as H.R. 3861) was recently introduced in both the House and Senate with bipartisan co-sponsorship. If the bill passes, it would bring the tax treatment of employer student loan contributions in line with the 401(k). This would make it more compelling—and likely more common—for employers to offer a student loan benefit.
If you have student debt, you’re probably already onboard with the idea of getting loan assistance from your employer. But here are just a few of the great things that could happen if H.R. 3861 passes:
-More employers would be likely to assist employees with student loans, since they would have a tax incentive to do so.
-Assistance from your employer would make more of an impact on your student debt, since you won’t be taxed on the contributions.
-As employees save money on student loans, they’d have more cash flow available to contribute to a retirement plan, buy a home, etc. This is not only good for the employee, but also great for the economy at large.
-The student loan default rate and delinquencies in the federal student loan program would go down.
-There would be less pressure on the government to solve the student loan crisis through costly loan-forgiveness programs and other legislation that burdens taxpayers.
Because of these advantages, and because we believe student loan assistance is a game-changing benefit for today’s debt-saddled workforce, SoFi strongly supports this bill and has met with Members of Congress to encourage them to pass this student loan bill. And you can help.
If you’d like to see employers offer student loan assistance alongside 401(k) and other HR benefits, you can help move H.R. 3861 forward in three ways: 1) encourage your employer to support the bill, 2) reach out to your Congressional representatives asking them to pass the bill, and 3) tweet your support with the hashtag #PassHR3861.
We hope you’ll help us make this bill a reality — because when employers help out with student loans, everybody wins.
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The employer has the same tax incentive whether the amount is taxable or excludable to the employee.
therefore the employer has no additional financial incentive.
You should clearly work on your reading comprehension skills…. This bill would in fact allow for similar tax treatment of EMPLOYER contributions in addition to employee contributions to this proposed new type of “student loan 401k”. Win win for both parties however I fear that this will actually have the hidden negative effect of actually increasing the rate of higher education inflation, just like the easier availability of cheap student loans has over the last 30 odd years.
CJ is correct. No additional financial incentive to the employer.
I have not seen ‘recent headlines’ about this and would like to see the list of companies who are offering ‘student loan debt assistance’. This plan is insane as free college. Nothing is free and IF a company is in fact offering this, what’s the catch? Lower pay, no 401k, health insurance, employment contract? What if they leave the company soon after hiring does the taxpayer then again get stuck when the employee goes on unemployment. This is a bag of worms unless you are a major company not paying their fare share of taxes to begin with; ie, google, facebook, starbucks, microsoft, banks etc.
After reading the comments, I noticed ppl complaining about the solution. Some were critical of the solution (which is fair and needed). But, I would like to see those that complained, come up with an alternative solution. Help figure this puzzle out.
Why doesn’t the government just drop payroll taxes and that money could go to student debt if you had any or in your pocket if you didn’t. Government gets paid back or the economy is stimulated by the extra money in peoples pockets. Wait…my fault,, they will ask someone else (employer) to pay them back before they do anything to help. Then when employers don’t they want to take part they will be the bad guy. Typical
Enable student debt to be discharbable in bankruptcy the same as any other debt.
Also, I would not support this as a replacement to existing loan forgiveness programs.
At the end if the day this is another tie that could bind employees to employers. It does not reduce the debt.
As another post mentions, this solution is likely to actually increase the debt problem, not solve it.
There is incentive to the employer. An employer pays taxes on compensation paid to an employee too. This is a creative way of compensating an employee for the purpose of paying towards student loans without having to pay the typical employer portion of taxes. If you don’t believe that, form your own business and hire an employee and see how much you have to pay in taxes.
This is extremely dangerous legislation, although well intentioned. If companies start chipping in $6,000 per month, let’s say over 5 years, for a total of $30,000, then colleges will exploit this new purchasing power and jack up tuition. Just like when the federal government offered PLUS loans that basically have no cap, colleges exploited that by raising their cost..seemingly with no cap. They just keep raising charges and spending. In both cases, the legislation should recognize the moral dilemma this creates and how the market will exploit it at the expense of students and taxpayers. Otherwise, you will see an additional amount of debt nearly identical to what the employer is now willing to pay. Instead of graduating with $30,000 in debt, the average graduate will find they are graduating with $60,000.
CJ is incorrect. The bill would allow employers to get favorable tax treatment for financial assistance (i.e. treat it like 401k match)
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No employer would contribute $6000.00 per month Adam…it will probably be closer to $100 per month. It is meant to assist those who are struggling with student loan payments – and their finances in general – which keeps that employee in a constant state of stress – making him/her less productive and more likely to leave his job for one with slightly higher pay…and I’m sure you know the high cost of employee turnover. The benefit to the employer is the ability to recruit younger, talented employees fresh out of college by offering a benefit that speaks directly to them…loyalty through shared values and concern reduces voluntary turnover and increases the bottom line – in theory anyway.
Why not expand the legislation to allow parents to use their 401k at 60 yrs of age to payoff the parent loans they took out for their kids without paying tax on the withdrawal. I was foolish enough to pay for my three kids tuition thinking my wife and I could handle the payments. Unfortunately she lost her job in 2014 and has been unable to find anything close to what she was earning. The only way I will ever be able to payoff the loans is by using my 401k but I will get killed on the taxes. Any suggestions?
My kids are not in a postiion to help me right now
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