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Student Loan Repayment Plans Under The CARES Act

Apr 8, 2020 3:00:00 PM

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Landmark legislation was passed by U.S. Congress which includes exciting news regarding student loan contributions.

The CARES Act was enacted on March 27, 2020 to provide economic relief to individuals and businesses facing hardships due to the coronavirus public health crisis and associated economic fallout. You already know that the CARES Act provides $2 trillion in emergency stimulus funds to American employers and citizens.

What you may not have heard is that the law also addresses the nationwide student debt crisis with provisions that allow for tax-free employer-funded contributions to employees’ student loans up to $5,250 per employee per year. Legislation for H.R. 1043 has been in the books for a few years now, but with SHRM’s and multiple vendors' support, traction has been increasing since 2016. Including this into the CARES Act was another way to provide economic support to both employers and employees.

Employer student loan contributions on behalf of employees are excluded from taxable income and also excluded from an employee’s income.

Passage of the legislation allows every penny contributed through employer student loan repayment benefits to go straight to paying down employee student loan debt, pre-tax, helping nearly 46 million Americans owing $1.6 trillion in student debt.


Student loan repayment plans have been on the top of the list as the most requested benefit, but in 2018 just 4% of employers offered a student loan repayment plan benefit, according to a PwC survey. That number doubled to 8% in 2019. The tax limitations on this benefit have been the biggest barrier for most organizations in the past. With that, we can foresee that more employers will revisit adding a student loan repayment benefit.


To enable tax-free employer contributions:

  • Adopt a section 127 plan or amend an existing 127 plan to include the student loan repayment plan
  • Once the plan is in place, the employer’s contributions can be recorded on payroll tax-free

Why should employers offer SLRPs?

37% of employees have more debt than they can manage and 41% of employees can’t cover 3-months of living expenses, let alone contribute to traditional retirement plans or afford to particiapate in other voluntary benefits.

The burden of student loans impacts employees' of all ages ability to meet financial goals - millennials, gen x, and baby boomers alike. Employers can contribute pre-tax dollars and employees can't. In order to contribute $1.00 to student loans, an employer can pay $1.00 or the employee can earn $1.42, then pay $0.42 in taxes and contribute $1.00 to the student loans.

This isn’t just a solution for student loan debt. Student loan repayments help employers attract and retain talent. Employers can offer an attractive benefit that can help reduce an employee’s financial stress. As a taxable benefit, top employers hire 13% faster and retain talent 36% longer.

We can expect a rise in retirement contributions and employees will be able to pursue life milestones that they have been delaying, like buying a car, a house, or starting a family.

Whitney Trent

Written by Whitney Trent

Whitney is the Wellbeing and Engagement Strategist at Gibson and is responsible for designing and overseeing health and wellbeing strategies for Gibson’s clients. Whitney assists in the presentation and implementation of wellness initiatives and consulting to clients. She is a licensed Thriving Workplace Culture Consultant™. Prior to joining Gibson in 2016, Whitney worked in fitness management, most recently with the National Institute for Fitness and Sport. Read Whitney's Full Bio