Lawmakers look to make student loan benefits tax-free
Lawmakers are once again fighting for a tax-exempt student loan assistance benefit, arguing that it would incentivize more employers to offer such benefits and ultimately help drive down the country’s massive amount of student debt.
U.S. Reps. Rodney Davis (R-Ill.) and Scott Peters (D-Calif.) on Thursday reintroduced the Employer Participation in Repayment Act in the U.S. House of Representatives. The bill would allow companies to annually provide $5,250 in tax-free student debt relief for workers.
Existing legislation allows companies to offer up to $5,250 in tax-free tuition reimbursement, but that incentive has not been in place for student loan repayment benefits.
Davis and Peters initially introduced the legislation in 2017, but Congress did not act. This year, Reps. Earl Blumenauer (D-Ore.), Elise Stefanik (R-N.Y.), Stephanie Murphy (D-Fla.), Tom Cole (R-Okla.), Gwen Moore (D-Wisc.), and Jason Smith (D-Mo.) join as co-leads of the bill. Senators Mark Warner (D-Va.) and John Thune (R-S.D.) will introduce an identical bill in the Senate, according to a press release issued by Peters.
Proponents say the legislation would incentivize more companies to help their employees pay off student loan debt.
“Our bill simply builds on this private-sector approach to addressing the student loan debt crisis in this country by allowing this benefit to be tax-free to both the employee and the employer,” Davis says. “This innovative approach to student loan debt has the potential to be the 401(k) of student loans and help millions of graduates who are struggling with student debt.”
Seven in 10 college graduates have student loan debt, and the average person leaves school $30,000 in arrears. Nearly 20% owe more than $100,000.
Though student loan repayment benefits are popular — more than a third of employees say student debt repayment is a must-have offering, according to Unum — just 4% of companies offer the benefit to employees, according to the latest statistics from the Society for Human Resource Management.
Estée Lauder, PwC and Sotheby’s are among the companies that offer such a benefit and contribute monthly stipends to their workers. The funds are applied to the principal on the loan, which helps the employee pay off the loan faster and save on interest.
A student loan benefit not only is a boon for employees with debt, but also for employers in their recruitment and retention efforts: 86% of employees would commit to a company for five years if the employer helped pay back their student loans, according to the nonprofit organization American Student Assistance.
Part of employers’ reluctance to offering student loan repayment benefits, experts say, is because the benefit is not tax-treated, which makes it a difficult offering for many companies to squeeze into their ever-growing benefits package.
“Many employers have successfully helped their employees pay down their debt, and encouraging similar programs across the country can move us closer to solving the student debt crisis,” Peters says.
Scott Thompson, CEO of student loan benefit provider Tuition.io, says passing the bill is “critical.”
“The $1.52 trillion student debt crisis affects more than 70% of graduates, and unless we collectively come up with a solution to address this, it will only get worse,” he says. “We are at the tipping point, and we cannot be part of the national consensus that knew about the crisis and did nothing.”