‘Hidden gem’ helps with the burden of student loans
As lawmakers scramble to ease the financial pain from the coronavirus pandemic, one provision that addresses the burden of student loans largely flies undetected.
Thanks to the Coronavirus Aid, Relief and Economic Security Act, better known as the CARES Act, employers can now help pay off an employee’s student loans up to $5,250.
While it’s a temporary benefit that expires at the end of 2020, the plan should resonate with borrowers who want to see more employers provide assistance to make college more affordable.
This “hidden gem” in the CARES Act, as one tax consulting firm called it, expands the scope of educational assistance benefits programs to include student loan repayments.
Prior to this spring, an employer could maintain a qualified educational assistance plan and provide up to $5,250 tax free to cover an employee’s tuition and fees — but not student loan payments.
For example, an employer could pay tuition and fees for an employee to take a course while employed, according to an analysis of the program by PYA, a tax consulting firm. “This type of educational assistance has long been permitted, is not affected by the CARES Act, and continues going forward,” the tax firm stated.
The financial relief act temporarily expands the types of payments that are permissible under a qualified education assistance plan for a period from March 27 to year-end. Student loan payments made before March 27 and beginning 2021 are not eligible.
Those loan repayments would not be subject to an employee’s income or payroll tax for 2020.
The loans must have been incurred by the employee for his or her education. Loans taken out by an employee’s parent or loans taken out by an employee for a child do not qualify. The program covers both federal and private loans
In return for offering this benefit, companies could reap tax savings, credits or similar benefits that have been implemented in response to COVID-19, according to a report by the law firm of Hinshaw & Culbertson LLP.
In recent years, several bills have been introduced unsuccessfully in Congress to expand educational assistance programs to cover student loans.
While many companies may have priorities other than expanded student loan benefits during the pandemic, there is support for the program.
An April survey by the International Foundation of Employee Benefit Plans found that 25% of the companies polled already offer educational assistance programs. Ten percent of those organizations were taking advantage of the student loan provision, but another 13% said they were considering it.
Bigger picture, the Gift of College, an online crowdfunding resource (www.giftofcollege.com), noted that 75% of respondents in a recent survey said employers should help pay for college, including help for paying down student loans.
If employers offered student loan assistance, the survey said, 34% said they would be more likely to stay at their job; 33% would be more likely to take a job with a firm offering this help; and 22%said they would go the extra mile at work.
Questions, comments, column ideas? Send an email to sbrosen1030@gmail.com.