In an ideal world, employer-sponsored student loan assistance and repayment programs would be as commonplace as health insurance and the 401(k). After all, it’s tough for younger workers to maximize their 401(k) contributions when they’re still trying to pay down an average post-college student loan debt of more than $33,000. As a result, while older workers who graduated when college was more affordable are benefitting substantially from 401(k) plans, millennial workers struggling under the burden of their college costs are being left out.
Part of the problem is the tax code. While the law provides a lot of incentives for employers to provide all kinds of retirement and insurance benefits, and allows employers to make nearly unlimited deductions for other forms of compensation, college tuition assistance benefits have largely been unchanged. Many employers in the private sector would like to help, but it’s difficult when they have to pay taxes on money they pay out in the form of tuition assistance programs, unlike government agencies, who don’t.
Representative Scott Peters, a Democrat representing voters in the San Diego area, would like to change that, and we at Tuition.io enthusiastically support the effort.
Peters has introduced the Student Loan Repayment Assistance Act (H.R. 1713) on the House floor, and is working to make it become law.
Substantial student loan debt is a burden for graduates that negatively impacts purchasing power and severely limits lifetime earnings, Peters argues. A study by Demos recently found that the average student debt burden in a dual-headed household with bachelors’ degrees from 4-year universities leads to a lifetime loss of nearly $208,000.
Peters’ bill would provide tax incentives for employers to pay down employee student loans as a tax benefit, similar to the deductions available to businesses to fund retirement plans, insurance plans and other employee benefit programs.
Here’s how it works:
- An employer enters into an agreement with an employee to assist them with student loan repayment up to $6,000 per year with a lifetime cap of $50,000 per individual.
- Like a 401K, the employee determines how much they would like to pay toward their student loans on a monthly basis and the employer determines the rate at which they will assist.
- Employee and employer contributions to student loan repayments are not subject to either income tax or payroll tax.
- The total employer and employee contributions would go directly to the loan holder on a monthly basis.
The net effect is expected to cut the number of years it takes for a college graduate to pay off a student loan from 10 years, on average, to five or less.
At the end of that process, the plan beneficiary would be able to save much faster for a car, a home, to start a family or accomplish any number of other life milestones that they have been pushing off due to student loan debt.
As we work to make college more accessible and affordable for every American willing to work for it, helping speed up the loan repayment process will make it so that young people can begin making investments to grow the economy. I’m proud to have Tuition.io on board supporting this effort as American families confront the $1.3T student loan debt crisis.”
While the law would benefit those who are statutory employees of student loan repayment assistance plan sponsors, in its current form it is not designed to benefit students who are self-employed independent contractors.
At present, the bill has 10 co-sponsors: Juan Vargas (CA), Alcee Hastings (FL), Brenda Lawrence (MI), Alan Lowenthal (CA), Mark DeSaulnier (CA), Jose Serrano (NY) Norma Torres (CA), Eric Swalwell (CA), David Cicilline (RI) and Kyrsten Sinema (AZ). The bill is currently in the House Ways & Means Committee.
Another bill, also sponsored by Congressman Peters, would refinance federal student loans at 4 percent, which would immediately reduce payments for thousands of college graduates.