Curious to understand what types of loans qualify for student loan repayment? You’re in the right place.
What types of loans qualify when the company offers a tax-free plan?
Federal and private student loans qualify for tax-free contributions under a section 127 Student Loan Repayment plan so long as the loan was taken out for the employee’s own college tuition and related expenses. These loan types include:
- Direct Subsidized, Unsubsidized, Consolidation, and Grad Plus loans
- Stafford Subsidized, Unsubsidized, Consolidation, and Plus loans
- Perkins Loans
- Private Student Loans
What types of loans can qualify when the company offers a taxable plan?
Of course, all federal and private student loans taken out for the purpose of the employee’s own college tuition and related expenses also qualify when the company offers a taxable plan.
Plus, some additional loans qualify:
- Direct Parent Plus loans taken out for the benefit of an employee’s dependent
- Private parent loans taken out for the benefit of an employee’s dependent
- Student loans guaranteed, or serviced by, non-U.S. entities
What types of loans do not qualify?
The following types of loans do not qualify for participation in taxable or tax-free student loan repayment plans:
- Co-signed loans, or any other loan where the employee is not the primary borrower on the loan
- Any non-student loan such as a personal loan, home equity loan, credit card, or other revolving debt facilities
- Defaulted loans that have been turned over to a collection agency
Why might an employer choose to offer a taxable plan?
As shown above, taxable plans can help the company engage more of its employees, including parents and employees educated outside of the U.S. In addition, companies that employ a lot of highly compensated workers — those who earn more than $130,000 or own more than 5% of the company — may choose to offer the benefit on a taxable basis because it would not be possible for their company to satisfy the non-discrimination requirements of section 127.
How are loans verified?
Once your company has chosen to offer its student loan repayment plan on a taxable or tax-free process, Peanut Butter makes enrollment easy.
When an employee elects to participate in her company’s Student Loan Repayment plan, she will agree to comply with Peanut Butter’s Terms of Use, acknowledge Peanut Butter’s Privacy Policy, agree to maintain compliance with all of her company’s employment/benefits policies including, if applicable, it’s Section 127 Educational Assistance Plan, and she will provide information about her student loan so that Peanut Butter can confirm that the:
- Loan type is a student loan
- Borrower’s first name is the same as the employee’s first name
- Loan is in good standing and able to receive payment
- Payment details are complete
- Balance is greater than $0
Ready to kick-off your company’s student loan repayment plan? To get started, click here.