Congress just gave your employer a good reason to help pay off your student loans. And unlike many student loan relief programs, this one includes private loans.
The December 2020 coronavirus relief law gives your boss the opportunity to chip in up to $5,250 a year toward your student loan balances without triggering extra taxes for you or the company. The provision incentivizes employer student loan repayment by exempting the benefit from payroll taxes, similar to employer-paid health insurance.
The tax exemption was scheduled to end on Dec. 31, 2020, after less than a year in practice. But now, tax-free employer student loan repayment is extended for another five years, giving you — and your boss — through Dec. 31, 2025, to take advantage.
Though only 8% of employers offered some kind of student loan assistance program in 2019, according to the latest employee benefits survey from the Society for Human Resource Management, that number is poised to grow.
A 2018 survey from insurance broker Willis Towers Watson projects that about a third of all employers will offer student loan repayment this year — and that estimate came before the tax incentive. David Aronson, CEO of Peanut Butter Student Loan Assistance, which manages employer repayment programs, expects the tax break to propel the trend even further, saying he believes “more than one-half of U.S. employers will offer student loan repayment five years from now.”
The tax holiday could even be made permanent, according to student loan experts. Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, says it could stick around if lawmakers see the value. “If more employers don’t start taking advantage of this as the powerful benefit it is to their employees, that risk [of losing it] will be there,” she says.
Here’s why you and your employer should get in on employer student loan repayment and the tax break right now.
It benefits your boss to pay your bill
The extended deadline gives employers more time and flexibility to set up student loan repayment. They now have at least five years to integrate a new program and reap the benefits.
Those benefits, according to Aronson, include attracting talent, increasing engagement and diversifying the workforce, as well as saving their half of employee payroll taxes.
“This is a low-cost benefit that employers can offer that makes a huge impact,” Aronson says.
Let’s say you have $30,000 in student loan debt with a 10-year term and 6% interest rate. If you make your regular payments while your employer pays $100 a month, you would pay off your loans nearly three years faster and pay about $11,600 less over the course of the loan.
And that type of benefit makes employees want to stick around.
Emili McPhail, spokesperson for The Estée Lauder Companies, says her company’s Student Loan Contribution Program helps “engage and retain top talent.” Brandi McKinney, head of human resources for Alabama Credit Union, says 90% of surveyed employees indicated they were more likely to stay with the credit union because of the student loan repayment program.
Pay attention to the details
Program eligibility requirements, payment frequencies, employee match obligations and payout caps vary from job to job. Contact your human resources department to make sure you understand how your employer’s program works so you can maximize your benefit.
For example, your employer may make student loan payments only as a match. Aetna matches up to $2,000 of student loan payments each year with a lifetime maximum of $10,000. If you don’t make payments, a program like this one won’t either. So even though federal student loans are in forbearance, consider making payments to meet your employer match maximum. It’s free money you'll miss out on otherwise, and any employer contribution will go straight toward your loan principal and help you pay down your debt even faster.
And it’s free money you won’t pay taxes on. The average single American worker paid a tax rate of 24% in 2019, according to the Organization for Economic Co-operation and Development. With that, you can expect to save up to $1,260 off your tax bill if your employer makes the maximum contribution.
If your employer doesn’t have a program
While employer student loan repayment is often used as a recruitment tool, you shouldn’t take a job only because it offers the benefit — especially if that means a substantially lower salary.
If your employer doesn’t have a program, you still get the break on payments and interest on federal student loans until October. But you might consider refinancing private student loans if you qualify, as rates are historically low and most government relief and forgiveness programs won’t apply.
And it never hurts to ask human resources when it plans to offer a repayment benefit. They may not realize how many of their employees could really benefit from it.