Congress Extends Student Loan Repayment Provision to 2025

The passage this week of the stimulus bill approved by Congress preserves the tax-free status of employer payments toward employee student loans through 2025, a marked difference from the year-end expiration date included in the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Under this provision, plan sponsors are allowed to make tax-free contributions of up to $5,250 per employee annually toward eligible education expenses, including tuition or student loan assistance, without raising an employee’s gross taxable income. Student loan deferment, however, will not be extended.

The CARES Act’s semi-permanent status meant fewer employers were willing to implement the payments. “The primary driver was semi-permanent legislation,” says Laurel Taylor, CEO and founder of FutureFuel.io, a student loan repayment program, in an interview with PLANADVISER. “The provision only had a nine-month lifespan within the CARES Act. It wasn’t pragmatic.”

She says this was especially true for large to midsize employers, many of which believed the provision’s brief availability was unnecessary. Now that it has been extended until 2025, Taylor expects a dramatic uptake in adoption.

Gradifi by E*TRADE, a student loan payment benefit administrator, applauded the decision to extend the provision, adding that it hopes the prolongation is a step toward permanence.

“It is a huge win that this legislation has been extended, but our work is far from over,” says Kate Winget, managing director and head of participant engagement and experience for Morgan Stanley at Work, which includes Gradifi by E*TRADE, in a press release issued by the company. “As the adoption of this benefit grows, we must continue our push to make this important tax treatment permanent.”

Prior to this provision, both employees and employers faced tax obligations on student loan repayment programs, as the employee would have to pay tax on an employer’s contribution. These tax payments can be an obstacle to achieving other financial goals, ranging from building emergency funds to saving for retirement, and they affect participants of all age groups.

“When we think about all employees—those who have debt—it’s not just Millennials who have it,” Taylor explains. “You have a huge spectrum of employees from [Baby] Boomers to Millennials who can now take advantage of this.”

Taylor notes that the provision addresses several problems in the workplace, not just financial stress. Employers that take advantage of the benefit offering could increase inclusivity in the workplace, as women and people of color are more likely to experience higher amount of debt. “It’s a double impact of being financially inclusive and addressing systemic issues within workplaces,” she says.

American workers were already grappling with large amounts of debt, but the coronavirus pandemic has left many people struggling financially as a result of reduced work hours, furloughs or layoffs. The current U.S. student loan debt has soared to $1.7 trillion, with an average monthly spending bill of $393.