What is Student Loan Repayment Assistance?
Student Loan Repayment Assistance (SLRA) is one of the fastest growing employee benefits. It addresses the burden that student loan debt places on today’s workforce and helps employers compete for top talent.
Employers can help by making payments toward an employee’s student loans. This contribution reduces the employee’s total loan amount paid, interest expense and the time it takes to pay off the debt.
Employer contributions up to $5,250 annually are income tax-free for the employee and payroll tax-free for the employer (through Dec. 31, 2025).
SLRA Is One of the Fastest Growing Non-Health Benefits
In this highly competitive job market, SLRA is a great benefit to offer. It is a win-win for employers seeking to build and maintain the highest quality team. A student loan paydown benefit brings financial relief and shows employees you're willing to improve the quality of their life. Did you know that over 50% of American workers say an employer-provided student loan repayment benefit would play a role in assessing job opportunities? (Source: SHRM) In offering SLRA employers can compete for and retain a quality workforce and improve productivity and engagement levels.
An unprecedented 65% of employees are looking for a new job; and 88% of executives said they’re seeing higher than normal turnover. (Source: PWC)
When Did Employer-Made Student Loan Payments Become Tax-Free?
The opportunity for an employer to make a tax-free payment toward employees’ student loans started with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The legislation included a temporary provision permitting employers to amend Education Assistance Programs and pay up to $5,250 per year on a tax-free basis toward an employee’s loans.
Qualified education loans, both private and federal, obtained to pay for specific higher education expenses — including tuition, fees, room and board, books, supplies and other necessary expenses — are covered.
On Dec. 27, 2020, the Consolidated Appropriations Act, 2021 (CAA) was passed by Congress and signed by the President. One of its provisions was to extend the tax-free advantage of employer payments through Dec. 31, 2025. The CAA continued what the CARES Act started, affirming that SLRAs are here to stay (at least until 2026).
The CARES Act expanded the scope of Sec. 127 of the Internal Revenue Code, which addresses employer-paid tuition benefits. The CARES Act stipulated that the $5,250 amount that employers can annually contribute tax-free for tuition assistance can be extended to student loan repayment assistance. According to Employment Law Worldview, an employer can “pay for all or part of an employee’s Qualified Education Loan as a tax-free benefit, provided that benefit is part of an employer’s Education Assistance Program.” The $5,250 cap is now the combined annual limit for education assistance payments–whether for tuition or student loan repayment.
Student Loan Debt Burdens Many Americans
Student loans can be stressful regardless of age or income level. 62% said their student loan debt negatively affects their mental health. (Source: CNBC)
Balancing payments with other bills and financial commitments can delay key life achievements for many. Student loan repayment support programs allow employers to differentiate themselves and show they understand a major pain point in their employees’ lives.
Student loan debt may cause mild anxiety for some or be a huge stressor for others; it is the second-highest consumer debt category in the US, so the impacts on individuals and the economy are huge.
Average Student Loan Debt by Generation
(Source: EducationDataInitiative)
How Do You Calculate the ROI on Providing SLRA?
The real question is whether you can afford not to offer SLRA. It can easily pay for itself when you calculate that losing an employee costs 1.5-2 times their salary due to decreased team productivity, recruitment costs, new employee training and hidden costs like reduced morale.
Check out our free SLRA ROI Calculator to help you estimate turnover cost (with and without SLRA), total SLRA contribution, fees and turnover reduction.
Aren’t Student Loan Payments Currently Suspended?
Yes, student loan payments on federally held loans have been suspended since March 2020. The payment suspension was implemented through the CARES Act and extended through multiple executive actions. But it’s important to note the pause is temporary and once repayment resumes it will surely be challenging for many borrowers. Most haven't made a student loan payment in three years. Plus, the challenging economy makes it even more difficult for borrowers to afford payments.
Nearly 90% of borrowers haven’t made a payment during the pause. (Source: NASFAA News)
Why Make Payments if They’ve Been Suspended?
While payments aren’t required during the suspension and no interest is accruing on federally held loans, the suspension doesn’t apply to all student loans (e.g., commercially held federal loans and private loans). Moreover, if payments can be made during the suspension, it can make a big difference in reducing borrowers’ balances more quickly. Loan servicers are applying the full payment amount to the principal balance (after any interest that accrued prior to Mar. 13, 2020 is paid). It’s an incredible opportunity for employers to help reduce employees’ loan balances more quickly and limit the amount of long-term interest paid on the debt.
How Does the One-Time Debt Relief Plan Impact SLRA?
On Aug. 24, 2022, the Biden-Harris Administration announced a one-time student debt relief plan of up to $20,000 on only federally held student loans. Considering the average federal student debt amount per borrower in 2022 was $37,575, many borrowers — especially those with advanced degrees — can still greatly benefit from student loan paydown assistance. (Source: Federal Student Aid Portfolio Summary, Q4 - 2022)
Currently, courts have issued orders blocking the student debt relief plan. As a result, ED is not accepting any more applications, at this time. In February 2023, the U.S. Supreme Court began hearing arguments related to the student debt relief plan. A final court decision is expected by June 2023. Federal student loan payments will resume 60 days after ED is permitted to implement the debt relief plan, the litigation is resolved, or June 30, 2023, whichever occurs first.
In this competitive job market, employers can’t afford to lose top talent. It may take months to fill an open position. The key to attracting and keeping the best employees is to address a relevant concern — you can provide peace of mind through SLRA.
This information does not constitute legal, financial or other individualized expert advice and may not be relied on as such.
Learn More About SLRA
Download our free e-book, Employer’s Guide to Student Loan Repayment Assistance.
Estimate your return on investment using our free SLRA ROI Calculator.
Discover how Co-Pay Partners® can make it easy for organizations to implement SLRA.
