Employer Student Loan Repayment: All You Need to Know

Q: What loans qualify for employer student loan repayment?

Federal and private student loans may qualify for employer student loan repayment. Federal law defines these qualified education loans as indebtedness incurred by the borrower solely to pay qualified higher education expenses for attending college. Privately refinanced student loans may qualify for employer student loan repayment as defined by federal law.

Q: Are there service commitments in employer repayment programs?

Employers may set the terms and conditions governing their student loan repayment programs. Participating in an employer’s student loan repayment program may come with strings attached. The employer may require service commitments from you in exchange for student loan repayment assistance. A service commitment may restrict your ability to quit or change jobs.

Q: How do you know if you are eligible for employer repayment programs?

Your employer can tell you whether there is a qualified student loan repayment program where you work. Such educational benefit programs are not offered by all employers. You may be eligible if you have qualified education loan indebtedness from the federal government or a private lender and work for an employer that offers student loan repayment assistance. Employers can set the parameters of their student loan repayment programs and may limit the reach of the program to exclude Direct PLUS Loans for parents.

What Is Employer Student Loan Repayment?

Sulaiman Abdur-RahmanUpdated May 25, 2022

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Update: Since the writing of this article, the Biden administration has extended the pause on federal student loan repayment into 2023.Employers may offer student loan repayment programs benefiting their eligible employees. The employer can make cash payments toward the principal and interest on any qualified education loan. That means employers can help you repay your federal and private student loans as an educational assistance benefit.The employer paying student loans can give the money directly to the employee or directly to the loan servicer. An employer student loan repayment program can provide tax-free educational assistance benefits up to $5,250 each year through at least 2025.An employer student loan repayment can help you pay off your student loan debt faster. Below we highlight several ways an employer can offer student loan repayment benefits to their eligible employees.

What Is Employer Student Loan Repayment?

Employer student loan repayment is a program an employer may offer as an educational assistance benefit to eligible employees. The employer paying student loans can provide its employees with tax-free educational benefits up to $5,250 each year through at least 2025.Getting employer student loan repayment assistance can help you pay off your student loan debt faster. The employer could give student loan repayment compensation directly to you as the employee or directly to your loan servicer. These benefit programs can help employees pay down federal and private student loan debt.If you don’t have employer assistance, you may ask, how long does it take to pay off student loans? It can take borrowers between 10 to 30 years to pay off federal student loans and five to 25 years to pay off private student loans.Some borrowers may never finish repaying a student loan during their lifetime. What happens to student loans when you die is the debt might be discharged, although some lenders may demand repayment from your estate.The difference between federal vs. private student loans is that federal student loans are provided exclusively by the U.S. Department of Education. Banks, credit unions, online lenders, and select state-based or state-affiliated organizations may offer private student loans. You can refinance federal student loans with private student loans.

Types of Employer Student Loan Repayment

Employers may offer the following student loan repayment programs to eligible employees:

Cash Payment Educational Assistance

Employers can offer educational benefits in the form of cash payments directly to the employee or the employee’s loan servicer. Chegg Inc., for example, announced in 2019 it would provide up to $6,000 in taxable annual benefits to employees who use the money for student loan repayments.

Match Payment Educational Assistance

Employers can match an employee’s monthly student loan payments as an educational benefit. Aetna, for example, launched a student loan repayment program in January 2017 where it would match its employees’ U.S.-based student loan payments up to $2,000 per year for a lifetime maximum of up to $10,000 for qualifying loans.CVS Health Corporation acquired Aetna in 2018 and has its own set of employee benefits that include tuition assistance programs.

401(k) Match Educational Assistance

Employers can offer educational benefits via 401(k) matching programs. The employer in this scenario can make contributions to an employee’s 401(k) matching the employee’s student loan repayment expenses per pay period.Abbott Laboratories, for example, launched a program in 2018 allowing employees who contribute 2% of their pay toward their student loans to receive 5% of their pay in their 401(k).

Benefit Swap Educational Assistance

Employers may allow their employees to swap or trade certain employee benefits in exchange for educational benefits. Unum Group, for example, allows its eligible employees to convert unused paid time off into student debt relief assistance. Unum’s U.S. employees may transfer up to 40 hours of carry-over PTO into a payment against student debt.

What Is the Tax-Free Limit?

Employers can provide tax-free educational benefits up to $5,250 each year through at least 2025. That means employers can give eligible employees up to $5,250 per year toward student loan repayment assistance without classifying the benefit as wages. It also means employees don’t have to report those tax-free educational benefits to the IRS when filing taxes.Employers may give employees more than $5,250 in student loan repayment assistance, but any compensation above that threshold becomes a taxable wage.The Coronavirus Aid, Relief, and Economic Security Act, aka the CARES Act, allowed employers to give employees tax-free benefits up to $5,250 for repaying student loans in 2020. Congress extended the tax-free educational benefits for student loan repayments through 2025 with the Consolidated Appropriations Act, 2021. This benefit will end on January 1, 2026, unless the federal government issues another extension or makes the benefit permanent.Recommended: Can Student Loan Forgiveness Be Taxed?

Should You Consider Employer Student Loan Repayment?

It doesn’t hurt employers to offer tax-free educational benefits to help eligible employees repay student loan debt, and employees may benefit from such a program.If an employer offers you student loan repayment benefits in the form of taxable income, that also might be worthy of consideration.Another option you may consider is refinancing to replace your existing student loan debt with the terms and conditions of a new loan agreement.In terms of how to refinance your student loans, you may submit a student loan refinancing application with a private lender and see if you qualify. Private lenders can set their own underwriting standards, but some may require applicants to have steady income and good credit. For subprime borrowers, it might be difficult to refinance student loans with bad credit.One of the big disadvantages of refinancing student loans with a private lender is you’ll be forfeiting federal benefits. Refinancing federal student loans will remove your access to income-driven repayment plans offered by the federal government. Some of the benefits of refinancing student loans include the ability to seek a lower interest rate. The federal government in March 2020 suspended student loan payments in response to the COVID-19 pandemic.After a number of extensions, the moratorium on student loan payments is scheduled to be lifted on August 31, 2022. Borrowers at that time may consider a student loan deferment. Meanwhile, people who served in the U.S. armed forces may qualify for military student loan forgiveness.

Explore Student Loan Refinancing Options with Lantern

Lantern by SoFi can help you compare student loan refinance rates. Refinancing might be right for you if you can lock in a lower interest rate. Explore your options today and consider applying with a lender of your choice.

Frequently Asked Questions

What loans qualify for employer student loan repayment?

Are there service commitments in employer repayment programs?

How do you know if you are eligible for employer repayment programs?

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Photo credit: iStock/SDI Productions

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About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and currently serves as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.

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