Does your employer know that they can pay down up to $5,250 of your student loans annually, without increasing your income taxes?
This is the kind of benefit that really helps employees and many employers wouldn’t mind chipping in, so it’s certainly the kind of thing that more people should know about!
Let’s start by covering essential information about the CARES Act that created this benefit, as well as some practicalities of the benefit itself, before discussing some other education-related benefits that may help.
What is the CARES Act?
The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) that passed in March 2020 had provisions to ease the burden of those of us who are up to the gills in student loan debt. Here are some of its provisions relevant to student loans:
- As you have probably noticed, federal student loan repayments have been paused, and federal student loan interest is temporarily at 0%.
- Unfortunately, this does not apply to private student loans.
- Employers are able to make tax-exempt student loan repayment contributions of up to $5,250 per year.
Note that the suspension of federal loan repayments ends on January 30, 2022! There’s a lot of buzz about the kinds of impacts it might have on the economy for tens of millions of students to suddenly have to begin repaying their loans all at once again. Many of these debt-holders are unemployed or underemployed, which certainly doesn’t help things at all.
Making Use of the Repayment Benefit
If your employer is willing to help you with your student loans per the CARES Act, there are two options:
- They can pay you the money, and you can then remit it to your loan holder.
- Your employer can pay your loan holder directly.
This might not seem to matter, but it could make a difference if you are going for Public Student Loan Forgiveness (PSLF). If you are on track to have your student loans forgiven after working for 10 years, it would be better for the employer student loan help to go to you directly to reimburse you for payments that you had to make regardless.
Unfortunately, this benefit only helps you if your employer is on board with offering it. Contact your HR office and ask them about this benefit today!
Other Loan Repayment Benefits
There are a few other benefits that holders of student loan debt may be able to make use of aside from those offered by the CARES Act:
- On your 1040, you can deduct up to $2,500 of interest on student debt every year. This may not benefit you if you have only federal student loans while the interest rate stays at zero, but don’t forget to use this benefit when the rate goes back up!
- The SECURE Act (Setting Every Community Up for Retirement Enhancement) that passed in 2019 allows an annual $10k draw from your Section 529 College Saving Plan to go towards student debt. Unfortunately, this provision only helps if someone you know could have afforded to sock away this kind of money for your education.
*If you own more than 2% of an S-Corporation and are also an employee you do not qualify for the student loan benefits.
TL;DR: The CARES Act of 2020 contained provisions to make life easier for holders of student debt: it temporarily suspended federal student loan repayments and set the interest rate to zero, and also it allows employers to make a $5,250 annual tax exempt repayment towards employee student loans. Not all employers are aware of this benefit, so it might be in your interest to let them know! Whether or not your employer elects to help you with your student debt, you can still deduct student loan interest from your income tax as before. If you weren’t aware, if you happen to have a Section 529 plan, you can use the funds to pay down student debt as of 2019.
