The latest COVID-19 relief bill will extend a $5,250 tax credit for employers who help pay down their workers’ student loans.
It’s unlikely that many companies have provided extra student-loan assistance this year to workers, given the state of the economy and motivations to reduce costs. The tax-credit provision surfaced earlier this year as a small component of the CARES Act, though it is set to expire Dec. 31. The pending legislation, which is currently stalled and awaiting the president’s signature, would extend the provision for another five years.
Following the CARES Act, small and medium-sized companies were quickest to act on student-loan assistance for their workers, with the tax incentive being a motivating factor, said Laurel Taylor, CEO and founder of FutureFuel.io. Smaller businesses are better positioned to quickly act on that kind of change than companies with at least several thousand employees, Taylor said.
“[Large] employers are really hesitant to implement a new benefit offering that would really only be in place for six months,” she said. “They have been waiting for this kind of certainty around tax incentives that are applied, just like they are with any other benefit.”
The new provision effectively extends the same tax treatment that has long been used for tuition reimbursement. They are now in “a shared piggybank,” Taylor said.
More than 70% of U.S. employers offer tuition reimbursement, she said. Accordingly, demand for student loan repayment assistance programs could be high, as those employers already have a budget for tuition assistance — and much of that budget often goes unused, Taylor said. About 8% of companies provide such student-loan repayment help, but that could go up to 40% over the next 12 to 18 months, she said.
Further, the current grace period on federal student loans payments is slated to end Jan. 31.
“As borrowers and employees face repayment … this bill could not have come at a better time,” Taylor said.
The tax-deductible student loan benefit would cover an additional 27 million to 39 million workers who could receive assistance, and the measure could help reduce the total federal student loan debt by a third over the course of a decade, if made permanent, according to FutureFuel.io.
Savi, a public benefit corporation that works with employers and financial services firms on student loan repayment and forgiveness options, said in a statement that, “In many conversations we have, employers are interested but have been looking for more long-term policy certainty about the benefit. This bill finally provides that and should push more employers off the sidelines.”
Numerous surveys have indicated that student loan debt is a major financial burden for young workers, many of whom put off saving for retirement while making payments. Employers are increasingly adding student-loan assistance perks in order to attract workers. And many young professionals are seeking those benefits.
A report in early 2020 from research firm Hearts & Wallets found that two-thirds of workers age 21 to 27 want such help from employers, while over a quarter said the same about saving for retirement.
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