The Consolidated Appropriations Act, 2021 (CAA), signed into law by President Donald Trump on Dec. 27 extends for five years COVID-19 relief that allows employer-provided student loan repayment as a tax-free benefit to employees under Section 127 of the Internal Revenue Code. Through 2025, employers can continue to make contributions of up to $5,250 per employee annually toward eligible education expenses, like tuition or student loan assistance, without raising the employee's gross taxable income.
The $5,250 limit is the amount that employers may currently contribute for tuition assistance and related expenses, such as fees and books, under Section 127 of the tax code. Through 2025, it becomes the combined limit for loan repayment assistance or other education-assistance payments employees receive, unless the limit—which is set by statute and does not adjust annually for inflation—is raised by Congress.
Tuition repayment assistance "allows employers to address a chief concern of the current workforce with a targeted and equitable employee benefit," said Laurel Taylor, CEO of FutureFuel.io, a provider of software for managing student debt repayment benefits.
According to Scott Thompson, CEO of Tuition.io, a benefits platform for employee student loan contributions, "providing a tax subsidy for employer student loan repayment doesn't just benefit individual workers; it will help reduce a major drag on the overall economy as we recover from the COVID-19 shock."
Advocates of tax-advantaged loan repayment benefits are expected to lobby Congress to make this change permanent. Around 8 percent of organizations are currently providing student loan repayment as a benefit, according to a 2019 survey of Society for Human Resource Management (SHRM) members.
Extending CARES Act Relief
The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law in March 2020, temporarily allowed employers to provide up to $5,250 in tax-exempt student loan repayment contributions or tuition assistance from March 27, 2020, through Dec. 31, 2020. The CAA extends these provisions through Dec. 31, 2025.
"Although the CARES Act amendment was a welcome change, the bill did not attract a lot of attention from employers," wrote Alexander Mattingly, an attorney in the Cincinnati office of law firm Graydon, in a blog post. "Not only was the incentive temporary, but employers without a program in place would have to adopt a formal education assistance program for a 2020 benefit, and many employers could not afford to provide an extra incentive in a year with a global pandemic."
The five-year extension provided in the CAA "makes the downsides to the CARES Act provision more palatable and shows that Congress is serious about providing solutions to the student loan debt crisis."
According to Kate Winget, head of participant engagement and experience for Morgan Stanley at Work, which includes benefit administrator Gradifi by E*TRADE, "It is a huge win that this legislation has been extended, but our work is far from over. As the adoption of this benefit grows, we must continue our push to make this important tax treatment permanent."
"SHRM has long-advocated for the expansion of employer-provided education assistance to include student loan repayment as a benefit and is pleased to see the benefit extended through 2025," said Chatrane Birbal, vice president for public policy at SHRM. "This benefit will provide some relief to employees who are currently repaying student loan debt and also gives employers more flexibility in the design of benefit offerings for recruitment and retention purposes."
Related SHRM Articles:
How the CARES Act Changes Health, Retirement and Student Loan Benefits, SHRM Online, March 2020
Converting PTO Funds to Student Loan Relief Is a Timely Benefit, SHRM Online, August 2020
The Business Case for Employee Student Loan Repayment Programs, All Things Work, January 2020