Decoding the OBBB: Permanent Tax-Free Treatment of Employer-Sponsored Student Loan Repayment

The OBBB has brought significant, permanent changes to federal student loans. For employers focused on college-educated talent, the biggest impact is the permanent tax-free status for employer student loan assistance. Employers have long found high ROI offering this benefit, both with and without tax advantages.

Here’s what the OBBB means for employers:

Permanent Tax-Free Assistance (Title VII): Secured

OBBB Section 70412(a) amends IRC Section 127(c)(1)(B), permanently removing the expiration date (previously 12/31/25) for tax-free employer student loan payments.

Section 70412(b) also indexes the $5,250 annual limit to inflation after 2026. While we recommend $50/$100 monthly contributions, this offers future flexibility.

What This Means:

  • Confident, Long-Term Planning: You can now confidently include student loan repayment in your long-term benefits strategy.
  • Simplified Admin: The familiar Section 127 framework remains. Federal loan servicer changes won’t impact employer contributions.

Student Loan Repayment & Forgiveness (Title VIII): Considerations for Future Hires

While federal loan program admin is separate, the OBBB’s end of Graduate PLUS loans (after July 1, 2026) matters for employers hiring those with advanced degrees.

Impact on Advanced Degree Recruitment:

Ending Graduate PLUS loans means master’s/professional students will have new borrowing limits, likely increasing reliance on private loans or personal funds.

Why Employer Repayment is Now MORE Critical:

Offering student loan repayment is even more vital for attracting and retaining talent in fields needing advanced degrees. The permanent tax-free status makes this employer benefit even more attractive, and employers see strong ROI from these programs.

New Federal Repayment Plans & PSLF:

The OBBB creates new federal loan repayment plans and includes the new “Repayment Assistance Plan” (RAP) for PSLF. While these affect employees’ federal loan options, employer contributions remain valuable and are now permanently tax-free.

Conclusion: Act Now for Your 2026 Benefits

The OBBB provides permanent tax-free status for employer student loan assistance, replacing the provision that was set to expire on December 31, 2025. Employers consistently see a high return on investment from these programs. Don’t delay offering this impactful benefit.

Implement our proven $50/$100 monthly program now to gain an edge in attracting and retaining college-educated talent, especially those pursuing advanced degrees. The permanent tax-free status under the OBBB makes this a powerful investment. Existing Peanut Butter clients: no action is needed to continue your student loan repayment program.

Contact Peanut Butter today to get your program ready for your 2026 benefit plan year.