Changing Landscape of Student Loans

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Without doubt, the attainment of higher education equips students with higher earning potential, improved job prospects, and countless other opportunities upon graduation. Unfortunately, life is never going to be a smooth sailing. Among graduates from the Class of 2016, the average student loan debt per borrower was $37,172 – not a saddling amount, but surely not an easy lift either. With student loan debts increasing year after year, repayment assistance benefits have grown as a popular strategy in employee recruitment and retention.
Under a bill introduced by Rep. Rodney Davis, tax-free employer repayments of student loans would be available for the first time, which would consequently challenge Section 127 of the Internal Revenue Code. Currently, Section 127 allows employers to exclude up to $5,250 in employer-provided education assistance annually. If the bill passes, the tax-free tuition reimbursement would apply to student loan repayment as well. Simply stated, students are permitted to pay off only the required minimums of the student loan debts for a while.

Although it is a long way from the bill being signed and implemented, many organizations including the Society of Human Resource Management (SHRM) recognize the merit in incentivizing student loan repayment by broadening Section 127.

Here are some facts to consider with the new bill:

  • Merely 3% of employers now provide student loan repayment benefits to employees
    • The bill may be exclusively aimed at student loans taken out for future coursework, which may not benefit employees with existing debts.
    • There is hope that the bill will apply retroactively, making it applicable for past coursework that contributes to an employee’s current job function.
  • Once the bill officially becomes law, employers can also choose to impose eligibility conditions, such as job category, employee status, and length of employment.
    • Employers may establish parameters that require minimum grade performance or continued employment for a reasonable period-of-time after course completion.
  • It’s a long way from being passed and signed, but there is enough interest in it that employees should consider just paying required minimums on their student loans for a while.
  • Employer payment of student loans is a very hot employee benefit currently and this bill would make it a pretax benefit.

If the bill does become a law it will also need to be part of an employer offered benefit to be applicable for employees. This certainly adds a new component for higher education incentives when recruiting next generation talent.

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