Keenan Blog

CARES Act Allows Employers to Offer Student Loan Repayment

July 21, 2020

Student loans are a burden many of us are faced with, and along with other challenges during the pandemic, the pressure debt can have on us is magnified. While unemployment is at record highs and Americans struggle to pay for necessities, student loans add to the stress of our new reality.

The CARES Act Addresses Student Loans

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was passed to ease some of the hardships that have resulted from the pandemic. Among other things, the act provides broad relief for federal student loan borrowers.

A notable aspect of the CARES Act in terms of student loans is a provision that allows employers to make tax-free payments of up to $5,250 towards their employees’ student loans. Under this temporary provision, between March 27, 2020 and December 31, 2020, employer payments towards their employees’ qualified educational loans may be excluded from the employees’ taxable income, allowing tax advantages for both parties.

Prior to the CARES Act, employers were already allowed to pay up to $5,250 per year toward employees’ qualified education expenses such as tuition and textbooks, per Section 127 of the Internal Revenue Code. However, the new CARES Act expands this provision for qualified educational expenses to include student loan repayments. Employers can pay up to $5,250 towards educational expenses, student loans, or a combination of both tax-free during the specified time frame.

Positive Impacts Beyond Tax Benefits

Tax advantages aside, this provision provides an opportunity for employers to provide a valuable added benefit for employees. Student loans can weigh heavy on an individual, and receiving help from an employer during a time such as a pandemic is bound to leave a positive impact. With many Americans struggling to afford basic needs, easing the stress of something as major as student loans could have a significant effect on employee stress levels and overall job satisfaction. Long-term, assistance such as this could even lead to improved employee retention rates.

Provision Requirements

To take advantage of the new provision, an employer will need to adopt a Section 127 Educational Assistance program if one is not already in place. The payments must be provided under several requirements, which include, that the program be in writing, that the payment not discriminate in favor of highly compensated employees, and that its terms and availability be adequately communicated to employees. Additionally, no more than 5% of the amounts paid can go to shareholders and owners who have more than 5% in the company’s stock or capital. Another important limitation is that the program cannot provide employees with the choice between educational assistance and other compensation. In other words, an employee who does not have student debt cannot receive extra compensation if they have opted out of the employer’s student loan repayment program.

While millions of Americans shoulder the debt of student loans, many are calling for greater sources of relief. However small of a step this provision may be, it is important for employers to become educated on the measures in order to implement or adjust current educational assistance programs. Taking advantage of the temporary provision could lead to a better company culture, heightened employee satisfaction, and a raise in spirits for employees who are shouldering the stress which the national emergency has placed on society.

About Allie Vossoughi
Allie is a Marketing Communication Specialist for Keenan who assists with proposal writing as well as authoring and distributing information relevant to Keenan clients.