Employers may have more incentive to offer student loan reimbursement for employees after Congress in December extended tax-free benefits for employers and employees through 2025 as part of recent COVID-relief legislation.
The CARES Act allowed employers to provide up to $5,250 in student loan repayment contributions or tuition assistance through 2020 as a tax-free benefit to employees, but those provisions were extended five years by the Consolidated Appropriations Act of 2021, according to an article by Stephen Miller, a certified employee benefits specialist at the Society for Human Resource Management (SHRM) and its manager/ editor of online content-compensation and benefits.
Before the tax break was granted, student loan contributions were subject to payroll taxes and also considered taxable income for employees.
That acted as a disincentive compared to tax-excluded benefits such as tuition assistance for employee coursework, Miller said in an email. Under the new rules, the $5,250 limit to tax-free tuition assistance or loan reimbursement is a combined limit under Section 127 of the Internal Revenue Code, which governs the benefits.
In a related matter, the U.S. Department of Education in January extended the COVID-related pause on federal student loan payments and collections through at least September, keeping the interest rate at 0 percent. The move was made at the request of President Joe Biden and extended a pause first set last March in the CARES Act. Various proposals also have been floated to forgive some federal student debt.
Total student loan debt is $1.68 trillion, with $1.54 trillion of that federal student loan debt, EducationData.org showed in January.
At Flatiron Construction, which has an office in Renton that works throughout the region, a benefits official at the company’s Broomfi eld, Colorado, headquarters praised the tax move by Congress on student loans.
Flatiron has offered tuition reimbursement of up to $5,250 for more than 10 years and has examined the addition of a student loan reimbursement program, even before the recent tax trigger by Congress, Tiffany Herron, director of total rewards for the company, said in Zoom call. She said there’s a strong possibility the company — which has 3,008 craft and professional employees in the U.S., including 114 in Washington — will offer a student loan reimbursement program sometime in the future.
The benefit isn’t offered by a lot of companies, Herron noted — an SHRM survey put the number at 8 percent in 2019 — but she expects that to change.
“I think that if you and I were to have this conversation in three years, or certainly five years, I think … you’d hardly be able to find somebody who doesn’t offer it,” Herron said. “I think it will gain significant traction in the next three to five years. It will become what tuition reimbursement is now, which is almost just kind of a table-stakes benefit.”
In an email, SHRM’s Miller said the percentage of companies offering loan reimbursement programs is expected to grow considerably higher with the five-year tax exclusion for employer contributions. SHRM has advocated making tax-free loan reimbursement permanent. It also has previously supported increasing to $11,500 the amount of annual tuition and loan reimbursement allowed tax-free under Section 127.
By contrast, 56 percent of employers SHRM surveyed in 2019 offered tuition assistance for employees pursuing degrees, he said.
Herron, citing student debt nationally, said debt is “absolutely eating people’s lunches.” Flatiron likes to hire young engineers and others out of college and their school debts can weigh on them and reduce how much they set aside for benefits like 401(k)s, she said.
Benefits like tuition or student loan reimbursement are important, Herron said.
“When someone’s comparing those lists of benefits and trying to decide whether they want to work for us or a Kiewit or a Skanska, they’re going to look at line by line by line, and if tuition isn’t on there or in three to five years student loan forgiveness isn’t on there, I think any employer will be pressed to be competitive,” she said. “So I definitely think it’s something that we’ll offer and the tax-advantage piece … that wasn’t the make-or-break decision (for Flatiron), we just hadn’t had time to firm up and cement the plan design. But I think that that’s only just another lever that will make it a lot easier pill to swallow when we look at the hard numbers of what it will cost.”
Melanie Ruiz, director of financial aid and veteran Services at Bellevue College, said a student loan reimbursement could entice job-seekers.
“I think the ability for an employer to offer assistance with student loan repayment can be a definite incentive if a job applicant is weighing multiple job offers,” Ruiz said in an email.
Benefit Could Catch on as Recovery Improves
Kristine Hoeflin, partner in charge of the Everett office of Moss Adams, a Seattle-based accounting, consulting, and wealth management firm, said more companies might consider the loan reimbursement benefit as they get more certainty in the pandemic about their business going forward. She noted the loan provision came out during the CARES Act last March, when the world was in the process of being turned upside down and some companies have been preoccupied with keeping their businesses afloat, not necessarily thinking about new benefits.
“I would think that as companies catch their breath and they have more time to digest whether this makes sense for them, you’ll hear more giving thought to it,” Hoeflin said in late January. “I think it’s been one that has largely been overlooked as a provision of the CARES Act simply because larger things like PPP loans and the different credits that have been a part of the CARES Act have just been so prominent in terms of being the Band-Aids that companies need. Once recovery comes through, you’ll see more that pause to think about whether this makes sense.”
Asked if she thought making the loan reimbursement tax benefit permanent would be advantageous for employers and employees, Hoefl in said, “It’s going to be advantageous in those industries where there’s a talent war, if you will,” where the loan reimbursement benefit could provide an edge for an employer, while also helping the employee pare their loan debt. Assistance for employees is always appreciated, she added.
“Whether employers right now are feeling like they have more cash to give out to employees, that’ll be uncertain, I think, in the short term with all the economic things going on currently,” Hoeflin said. “But if it was permanent, maybe you would have more that would say, ‘Let’s go ahead and move forward with this, because our efforts won’t be short-lived; we’ll actually get a benefit for going through the effort of setting up a plan for the long term.’”
Offering loan reimbursement will be easier for companies already offering tuition assistance through an education assistance program by simply adding the new CARES Act provision to their program, she said.
SHRM’s Miller said tuition or loan payment programs aren’t too difficult to set up, but they do require a written plan, so some legal and written administrative work is involved.
“All employee benefits require efforts to comply with relevant regulations,” he wrote.
‘Very Grateful’ for Education Help
Flatiron’s Herron calls education a core value for her and appreciates the tuition assistance programs she benefited from in the past. She’s proud of the program Flatiron offers.
“I remain very grateful that when I look back on some of my past employers, that they were a piece of that journey for me and that they helped me achieve my educational goals,” Herron said. “… When I went to get my graduate work done, I was able to take advantage of tuition reimbursement and I’ll always have a special place in my heart for those companies that helped me to do that … and fulfill those personal dreams.
“I would like to think that maybe someday, in 10 or 15 years, someone will hold a special place in their heart for Flatiron because we helped them achieve a goal that otherwise would have been more difficult to attain,” she added. “… I’m just happy to be a part of it and that we champion that, and that we show that we value that ongoing growth and learning — because no matter where you’re at in your life, you can always learn and grow, and develop. And this shows that that’s a pillar that we value, so that’s important to me.”