How Can Employers Help Staff Repay Student Loans?
2023-12-03 – BE&O A&B
After a three-year hiatus, borrowers now find their student loan payments are due again. And as many struggle to get back into the habit of repaying their loans, employers are feeling the squeeze as well.
When the COVID-19 pandemic swept across America in 2020, the federal government wasted little time putting student loan payments on a temporary hiatus while the economy stabilized. But that time is now up, and many borrowers face the dilemma of trying to fit sizable loan payments into their monthly budgets again.
Courtney Kincaid, President and CEO of the Indiana CPA Society, says the rapid rise in inflation over the last couple of years has not helped the situation. Just as repayments are starting, borrowers and consumers are finding everyday goods, and expenses are much higher than they were before a payment hiatus went into effect.
That dynamic can also be an issue for employers, who might find their workforce is stretched thin financially, which can cause issues at work. Kincaid encourages business owners to think of creative ways to help their staff who may be facing financial hardship from having to repay student loans.
Some employers can find help in Section 127 of the Internal Revenue Code of the IRS. This section lays out provisions where employers can assist employees in the repayment of student loans. The section, which dictates how much an employer can contribute to an employee’s student loans, was revised during the CARES Act.
Kincaid says in addition to an obvious benefit for the employee, the contribution is not considered taxable income, and the employer who assists can receive a tax credit. Kincaid advises employers to work with a tax professional when considering Section 127.
Outside of Section 127, Kincaid says employers can make small bonus payroll contributions to employees if they want to assist. And even if the amount is small, $50-$100 a month, that could greatly impact the loan balance over time.
Many business owners allow their staff to cash out unused PTO at the end of the year, and the windfall can be used to pay off burdensome student loans.