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.
- 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.