For employees lucky enough to work for a company that offers a student loan repayment program, the benefits of this perk are clear: Employees get “free money” from their employers to help pay down their student loans.
Under employer student loan repayment programs, employers help employees pay back their student loans in amounts that vary from company to company. This monetary assistance can be a great help to individuals struggling with student loan debt—and may even ultimately have an impact on the economy. However, prior to 2020, employer contributions were subject to both payroll and income tax, which means that for employees, the benefit wasn’t quite as big as it might first appear.
That changed in early 2020, when the Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded on this financial assistance by making all employer-match contributions up to $5250 tax-free, exempt from both payroll and income tax.
While the measure implemented in the CARES Act was due to expire in January 2021, the new stimulus bill signed by President Donald Trump in December 2020 has extended that tax-free benefit for another 5 years, with a new expiration of January 1, 2026.
Understanding Employer Match of Student Loan Repayment
What is an employer student loan repayment program? It’s a way for companies to help alleviate their employees’ student loan debt burden by offering them a match (up to $5250, tax-free) on payments they make toward their student loans every year. Employers make a regular contribution to an employee’s student loan balance, say $100 a month for example, while the employee continues to make regular payments.
In this way, employees can pay down more of their student loan balance and/or interest. Prior to the CARES Act, an employer’s student loan contributions were considered taxable income, but now till 2026 they will be tax-free and fall under the same maximum (up to $5250), as tuition reimbursement benefits from an employer.
There are a number of services available to companies who are looking to manage this kind of benefit. Just like the companies designed to help HR departments manage other benefits like health care, financial institutions can help assist with student loan repayment plans.
Companies with Student Loan Repayment Benefits
Employer student loan repayment programs are still rather new—only about 10% of companies offer them. To get a sense of what kinds of programs different employers offer, here are several examples of companies who have this incentive in place:
• In 2019, Chegg, the education technology company best known for online textbook rentals, began offering its employees $1,000 annually toward student loan debt, with an additional equity grant of up to $5000 annually.
• Estée Lauder, the cosmetics company, launched their student loan benefit program in 2018, by offering $100 monthly for payback, with a cap of $10,000 total.
• In 2017, Fidelity, the brokerage firm, started offering a similar program by providing newer employees below a certain title $2,000 per year, up to $10,000 for student loan repayment matching.
• Also in 2017, Live Nation, entertainment and events, began contributing $100 monthly to student loans, maxing out at $6,000 in repayment.
• Penguin Random House, the book publisher, began in 2018 to reimburse up to $1,200 yearly (capped at $9,000) for student loans, for a full-time employee who has been with the company at least one year.
• PwC, also in the financial services industry, also offers $1,200 annually, up to $10,000 total for student loan payments.
• SoFi offers one of the more unique employer student loan repayment programs on the market, offering $200 a month in reimbursement with no cap.
Implementing a student loan repayment program with a matching contribution will depend on a company’s size and resources.
But this kind of incentive can appeal to potential new employees. Most companies do not require employees who leave the organization to repay the benefit. Paid out monthly, it can really help with the most burdensome student loan payments, which some employees might find more valuable than, say, a year-end bonus.
Save on Student Debt while Saving for Retirement
Helping employees pay down student loan debt, while also still saving for retirement, is a benefit that could really increase the appeal of an employer loan repayment program.
In 2018, the IRS cleared a path for employers to create a different kind of student loan payoff program that could help attract employees. The program was created by Abbott Laboratories, but companies of all sizes could use a similar approach.
The IRS allowed Abbott to help its employees save for retirement and pay down student debt, with a new program that allows people who direct a certain amount of their paycheck to pay off student loans to also get a contribution from Abbott for their retirement accounts.
Abbott’s program might inspire more employers to implement similar programs, where the company can make a tax-free contribution to the employee’s 401(k), on the condition the employee makes student loan payments.
With the recent extension of the rules set forth in the CARES Act, employer student loan repayment contributions up to $5250 are payroll-tax and income-tax free until January 2026. For individuals whose company offers such a benefit, this makes it more useful than ever before in paying down student loan debt.
Just like a 401(k) retirement match, a company that offers a student loan repayment program is basically offering you extra money. For many employees, even an extra $100 a month could be enough to help them get out of debt faster and feel more confident about their financial security.
To make the most of student loan repayment benefits and pay down loans in the most efficient way possible, it’s always a good idea to evaluate your current payment plan. For some individuals with federal student loans, switching to an income-driven repayment plan or consolidating your loans could make monthly loan payments more manageable.
For individuals with multiple student loans, or both private and federal student loans, it might make sense to consider refinancing your student loans through a private lender, such as SoFi. Refinancing combines multiple student loans—federal or private—into a single loan with one monthly payment. And refinancing can potentially lower your overall interest rate or give you access to more favorable loan terms. That said, refinancing with a private lender means forfeiting access to federal loan benefits like income-driven repayment plans, deferment, and public service loan forgiveness. Nonetheless, if your credit score and earnings have improved since graduating from college, refinancing might be a way to pay less in interest with a lower interest rate and a shorter repayment term.
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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