A Student Loan Assistance Plan

that helps more employees & their family

A Student Loan Benefit That Is More Inclusive

Most companies focus only on employees who have student debt. We know that student debt affects more employees than just those with student loans. The PayForED comprehensive platform reduces the financial stress of the household. This includes employees, employee spouses and parents of college-bound students.

Student Loan Assistance Resource FAQ

• What is a Student Loan Assistance Program?

This is a new benefit for many companies. The majority of the current solutions focus on only employees with student debt. The primary goals for a Student Loan Assistance Benefit are to reduce employee financial stress, attract new employees and retain employees. Now with over 56% of student dollars being repaid using Income-Driven Repayment (IDR) methods. Employers need to include the employee’s house since household income vs just the employee’s income could mean thousands of dollars a year in added cash for the employee’s family. According to a 2019 AICPA Younger Worker Survey loan repayment (41%) was preferred over retirement matching (36%) and tuition reimbursement ((25%).

• How does student loan reimbursement work?

As par to the CARES Act and American Consolidation Act, this new tax-free benefit has been extended through 12/31/2025. It follows the rules of a tuition reimbursement plan. Companies need to create a written plan which determines the amount that bill be reimbursed, which employees qualify, and how often it will be paid. Prior programs were taxed as salary expense for the employer and income for the employee. Under the new rules, it is classified as a business expense for the company and a tax-free reimbursement for the employee. Employees must show the expense of student loans repayment. Both federal and private student loans are refundable. Both principal and interest can be reimbursed. The only exclusions are Parent Plus loans and parent’s payment on a co-signed private loan.

• What does a Student Loan Assistance Program Cost?

It will depend on the features that employers are considering. Most plans are based on a participant volume level starting at $3/month to $15/month depending on the number of employees. Most of the plans have a monthly or annual minimum. The biggest cost driver is the direct deposit of funds to the borrower’s lender. With the change to it being a reimbursement, that cost can be minimized since companies can use their current internal employee expense reimbursement process now due to the rule changes.

• What is the Return on Investment of a Student Loan Repayment Benefit?

Both the employer and employee could see significant financial returns. For the employer, they could see reduced turnover, increased productivity due to reduces employee stress, and overall better employee satisfaction. Employees could see increases in their net pay, loan forgiveness worth thousands of dollars, and improved overall financial wellness. If implemented correctly it will increase participation in retirement savings and allow for improved financial futures for more employees.

• What are the tax advantages for the employer and employee?

Before these new laws, a student loan assistance payment was a tax event for both the employer and employee. Both were required to pay the associated income tax as it was a salary item. Reporting of the payment would appear on the employee’s W2 each year. As most companies adopted the payment to go directly to the employee’s lender to reduce the loan principal, it did not help the employees with the immediate financial stress of their student loans. With it now being classified as an educational expense reimbursement under IRS Section 127, it becomes a business expense for the employer and a business reimbursement expense for the employee. The eliminates the income tax due for both parties. As employers can opt for various payment schedules in their design plan. This employer’s decision could help employees that are really struggling with their monthly student loan payments.

• What features should a student loan assistance plan have?

Employers have a great deal of freedom and flexibility in the plan design. The first step for employers is to determine the primary goals of the plan. Under the IRS rules it needs to be a written plan, can not exceed the payment of $5,250 in a given tax year, be paid (not just incurred), and be either related to current business job skills or a degree program. It will need to follow the current business expense guideline for reimbursable expenses like proof of the expense and directly related to the employee. Companies have the flexibility to include all employees or just full-time. They can reimburse monthly, quarterly, semi-annual, or annually. Employers need to determine the primary goals of the plan to get their desired results.

• Is a student loan assistance plan easy to implement and administer?

Yes – in most cases, it is straightforward. The implementation will depend on the features and functionality an employer includes. Most of this will be driven by the method of payment a company decides. As an example, will the company want to use their current business reimbursement process or have the money go directly to the employee’s lender? The options of the employee’s lender will require more work for the employer and employee since it is a change in the current policy. The other most common item is verification of eligibility and how often that will be required for both enrollment and reimbursement.

• How is a student loan assistance reimbursement plan different from student loan forgiveness?

As more companies begin to adopt a student loan assistance benefit understand the difference between the features can be confusing. A student loan reimbursement benefit is a process where an employer is willing to reimburse employees a portion of their student loan payments for a given period. Student loan forgives can be part of that plan. There are two major types of student loan forgiveness. The first is Public Service Loan Forgiveness (PSLF). This allows employees who are direct employees of certain companies to have their federal student loans forgiven after 120 on-time payments. The End of Term loan forgiveness is earned after 20 – 25 years and is not restricted to the type of employment. As a general statement student loan assistance plans will be more likely found in the private sector while PSLF will be more common in Government and Non-profit employers.

• What are the specific laws that govern a Student Loan Assistance Benefit Program?

The laws related to Student Loan Assistance Program are the CARES Act and the Consolidated Appropriation Act. The CARES initiated the law with the tax-free reimbursement of student loan payments for company employees but that initial expired in 2020. The Consolidation Appropriation Act extended this law through 2025. Many think this will be made permanent in upcoming laws. Both use the IRS Section 127 rules for company guidance. Most are familiar with Section 127 since these are the same rules that manage tuition reimbursement for company employees.

• Can a student loan assistance program help more employees than just those with student loans?

The early adopters of student loan assistance plans focused on only employees with student loans. With more companies evaluating employee financial wellness a broader view of a college student loan assistance benefit needs to be analyzed. Here are three major trends occurring during your consideration: (1) the increased use of the Income-Driven (IDR) methods requires a household view of the borrower’s adjusted gross income, not just the employee; (2) 70+% of newly educated workers will enter the workforce with student debt, and (3) people over the age of 50 are the fastest-growing student debt borrowers. If the company’s goal is to improve overall employee financial wellness a more comprehensive plan should be implemented.

• Is a student loan assistance plan just for large employers

No – Any employer who has more than 10 employees could afford this benefit. Since the plan can be designed to have flexibility, employers can now provide financial help with maybe the largest financial decision that many parents and children will make together.