A closer look: employer-provided student loan repayments

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Article 2206 of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), enacted on March 27, 2020, extends the tax-free education assistance programs that employers can offer to their employees to include student loan repayments. This allows employers to offer a tax-free student loan repayment of up to $ 5,250 in 2020. This provision is only in effect from March 27, 2020 to December 31, 2020.

Educational assistance programs

Educational assistance programs are authorized under IRC § 127. They allow employers to provide tax-free educational assistance to their employees up to $ 5,250 per year. To meet IRC § 127 requirements, the program must be established in writing, communicated to all eligible employees, and offered to employees on a basis that does not discriminate in favor of highly paid employees. Employees eligible for the program cannot have a choice between receiving educational assistance benefits or taxable compensation.

Prior to the CARES Act, “education assistance” was defined to include the payment of expenses incurred by the employee for the employee’s education, such as tuition, fees, books and expenses. stationery. The CARES Act temporarily expands the definition of educational assistance to include payments on the principal or interest of any qualifying student loan debt incurred by the employee for the employee’s education. This includes student debt incurred by the employee for their own graduate education expenses, but does not include student debt incurred by the employee related to the education of a spouse or dependent. .

An employer who offers an educational assistance program can repay a student loan to the employee or directly to the lender. These payments are excluded from the employee’s gross income, provided that all educational assistance benefits do not exceed $ 5,250. Student loan repayments after 2020 cannot be covered.

Federal student debt payment relief

In addition to the benefits provided through education assistance programs, Section 3513 of the CARES Act temporarily suspends payments on federal student loans until September 30, 2020. The provision also suspends the accumulation of interest on these loans during this period. Federal student loan borrowers can continue to make principal payments during the suspension, but this is not required. It is important to note that borrowers do not need to make payments during this period to continue to be eligible for loan cancellation programs or existing loan rehabilitation programs. For the purposes of these programs, loan repayments will be treated as if they were made on a monthly basis. In addition, loan repayments will be treated as if they were made on a monthly basis for the purposes of reporting loan information to a consumer information agency. Finally, all collection efforts related to federal student loan debts are on hold until September 30, 2020. This means payday garnishments and reductions in tax refunds and Social Security benefits on loans overdue will be suspended for this period.

Employer’s Considerations

Employers can adopt educational assistance programs to provide this benefit to employees. Employers who already offer educational assistance programs can revise them to include student loan repayments until December 31, 2020. Although federal student loan payments are not required until September 30, 2020, Federal relief does not apply to private student loans and does result in loan forgiveness (for those who are not enrolled in loan forgiveness programs). Therefore, continued payment assistance can help employees who are financially impacted by COVID-19 stay on track with their loan repayment schedule.

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