January update on Tax-Free Student Loan Assistance

Employers may now offer Student Loan Repayment tax-free for years to come.

2020 is finally behind us. 

And as we enter 2021, more employers than ever before will be offering Student Loan Repayment in an effort to attract, retain and engage a talented workforce in the new year. 

With many provisions from the CARES Act now expired as of 12/31/20, you may be wondering: How might employer-sponsored Student Loan Assistance look in the new year?

This surge will be driven by several factors:

  • Companies need to stand out when hiring and the market for talent remains competitive in many industries including healthcare, technology, professional services and financial services. View industry-specific data here. 
  • Turnover is expensive and companies offering Student Loan Repayment consistently report reductions in voluntary employee attrition, thereby reducing their costs of lost productivity, rehiring and retraining were those employees to have left.
  • More companies than ever have made diversity an imperative. Since 2/3 of student debt is held by women, and African Americans and Hispanics are 2x as likely to hold student loans as their white peers, Student Loan Repayment is a unique financial incentive that employers, like Google, are now offering in order to improve the positive impacts of gender and cultural diversity.
  • The payment holiday on federal student loans is set to end 1/31/21, which means that come February 1st, nearly 40M Americans will again be required to pay hundreds of dollars per month toward their student debt and see interest accrue on their loans. Employers have a unique chance, right now, to step in and make a difference for their team members.
  • Finally, many companies are struggling with worker disengagement and apathy due to challenges presented by working from home and/or working on-site during a pandemic. It’s no longer feasible to host team outings, events or meals, so companies need to find new ways to engage employees by addressing employees’ wants and challenges.

And now, Student Loan Repayment is even more impactful for employees. As a result of the Consolidated Appropriations Act (H.R. 133, specifically Sec. 120), companies may now pay down their employees’ student loans tax-free under the terms of a Section 127 educational assistance plan. 

By offering Student Loan Repayment tax-free, employers will:

  • Make a greater impact on employees’ financial futures, since State and Federal income taxes no longer need to be withheld for contributions; a tax savings of about $0.30/dollar goes directly to the employee’s bank account.
  • Save on payroll taxes, since your company no longer needs to withhold FICA, FUTA, SUTA for contributions; a tax savings of about $0.10/dollar stays on the company’s balance sheet and improves earnings.

Companies offering Student Loan Repayment in 2021 should be prepared to see faster hiring timelines, longer employee tenure, greater diversity, increased employee engagement, and are now able to record those contributions as tax-free under a Section 127 educational assistance plan. 

All Peanut Butter clients receive a sample Section 127 plan document that can be used to establish a new Section 127 plan, or a sample 127 plan amendment to incorporate Student Loan Repayment into an existing 127 plan.

Clients

If you are currently offering Student Loan Resources or Student Loan Repayment and would like to enable tax-free contributions, check out your Program Administrator Toolkit for a sample 127 plan document. Once you’ve adopted the plan, your contributions can then be excluded from the employee’s gross income.

Employers

If you’d like to set up a Student Loan Assistance program for your company, click here to Pick a Plan. 

Brokers & Partners

If you’d like to help a client set up a plan or receive a proposal, click here to Pick a Plan.

Learn more about tax-free Student Loan Repayment.