Education spending was the number one financial disruptor in 2019.
Approximately 42 million to 45 million Americans are facing student loan debt and find themselves now in the wake of employment disruptions caused by the COVID-19 pandemic. The ever-growing student loan situation in the United States has been a hot topic for political candidates and employers alike for several years. Thanks to last week’s COVID relief bill, employers now have a greater opportunity to provide tax-exempt student loan repayments for employees.
Student Loan Relief
It is estimated that only 11% of borrowers are paying down their student loan debts, as the U.S. Department of Education provided a waiver in March on paying interest on federal loans as a means of reprieve in the volatile employment situation. However, without additional federal intervention, those loan payments are slated to resume as of this month for millions of Americans.
Paving the way for employer assistance
In the December 27, 2020, COVID relief bill, lawmakers expanded on an option for employers to help their workforce make a dent in their mounting debt and taking a swing at the national student loan debt amount of $1.6 trillion.
Over the last five years, the idea of student loan debt assistance has been gaining traction, particularly in a tight job market. Approximately 1 in 10 employers offered a student loan benefit as of 2019 (SHRM survey). Employer student loan assistance is an effective way to recruit young talent and retain already trained and valuable workers. And as the job market continues to fluctuate throughout the post-COVID phase, it can still be a solid benefit offering to help workers get back on their feet. According to the 2019 SHRM survey, that number would rise to one in three if the government would provide tax relief on the benefit.
The COVID extension has done just that. While the March 2020 CARES Act allowed employers to make tax-free contributions of up $5,250 through the end of the year, the December COVID relief act has extended that provision through at least December 31, 2025. This provision is covered under Section 127 Educational Assistance benefits, the same regulatory section that governs tuition reimbursement programs. The student loan benefit is available for the employee’s student loans (not dependents’ loans) and can be provided as a tax-free payment.
Employers who want to explore or expand this area of their benefits should consult with their benefits advisers and consumer accounts provider to see how to create this highly popular benefit. Employers have long been providing access to retirement savings, but at least two-thirds of workers between ages 21-27 want their company to help them pay down student loans, while only a quarter in that same group would be as interested in retirement support. It stands to reason that with the benefit now extending into 2025, it might be here to stay.
COVID Relief Bill Explained: Compliance and Benefits Considerations
Watch our webinar recording featuring our own in-house counsel, Bruce Gillis, and benefits law expert from Seyfarth Shaw, Ben Conley, as they break down the December 27 COVID relief bill, including FSA and Dependent Care FSA extensions, COBRA considerations, the “No Surprises” provisions related to in-network/out-of-network services billing and more. Watch it here.