Student loan debt can be a major source of employee stress, and some borrowers will feel even more pressure with the recent budget bill’s changes to federal student loan repayment options. Education assistance programs enable employers to alleviate some of this pressure and can be utilized as a powerful tool for attracting and retaining talent. Employers historically did not have the ability to provide tax-advantaged student loan repayment benefits. That changed temporarily with the CARES Act and subsequent legislation (see our prior blog post), which amended Section 127 of the Internal Revenue Code to allow tax-free employer contributions of up to $5,250 per year toward employees’ student loan repayments if offered through a formal education assistance program. This temporary measure was scheduled to sunset at the end of this year.
Although we saw some interest from employers, the temporary status of the student loan repayment option through an education assistance program left many employers hesitant. That uncertainty has now been resolved. The budget bill permanently extends the ability for employers to make tax-free student loan payments through education assistance programs. Additionally, starting in 2026, the annual $5,250 benefit limit will for the first time be indexed for inflation. The increased limit will affect all benefits provided through an education assistance program, including tuition assistance programs.
For employers with existing education assistance programs, this is an opportunity to revisit and enhance plan offerings. Employers can add the student loan repayment option if it is not already provided or make sure the feature is permanent in the plan document. Employers that want to provide increased benefits to keep up with the annual inflation will need to review their plan document before the new year to determine if an amendment is necessary.
Employer student loan repayment benefits are no longer just a short-term solution; they can be a durable strategy for supporting employee financial wellness and enhancing your benefits package. Employers must comply with IRS requirements to provide this tax-advantaged benefit (e.g., an education assistance program must be a written plan document), but the compliance costs are heavily outweighed by the benefits. If you have questions about implementing or amending an education assistance program, please feel free to contact any of Bricker Graydon’s Employee Benefits team members.
