As recently announced, President Biden has authorized forgiveness of up to $10,000 for federal student loan borrowers and $20,000 to individuals who received Pell Grants.
Employers are also able to provide student loan repayment benefits to their employees on a tax-free basis by expanding the type of permitted expenses under a Code § 127 “educational assistance program” to include student loan repayments made by the employer on behalf of an employee. If an employer has or adopts an educational assistance program, the employer may make student loan payments on behalf of an employee in an amount up to $5,250 annually, and such payments would be excluded from the employee’s taxable income.
The $5,250 cap applies to the aggregate of the student loan payments and any other permitted qualified education expenses for each employee provided under the employer’s educational assistance program. The tax-free benefit for the student loan repayments applies only for employer loan payments made before January 1, 2026 (unless Congress seeks to expand the program).
A student loan repayment benefit offered to employees could be a strong recruitment tool.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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