Are Employee Student Loan Contributions The Next 401(K)?

Image courtesy of Sapurah Lashari

Any help graduates can get when it comes to repaying their mountains of student loan debt is often welcome: from cities offering debt forgiveness to keep young adults in their areas to programs in which states will pay for portions of their education. Now, more employers are jumping on the assistance train by providing student loan payment contributions as part of their compensation plans. 

In addition to offering vacation and sick time, health insurance, and retirement contributions, Bloomberg reports that more companies are contributing a few thousand dollars toward employee student loan debts as a benefit.

In an attempt to persuade more companies to help employees repay their education debts, a pair of companion bills — dubbed The Employer Participation in Student Loan Assistance Act [PDF] — are currently making their way through the House and Senate that aim to provide businesses with a tax incentive to do so.

Unlike 401(k) contributions, which are tax deductible, when a company provides employees with money to pay off their student debt, it counts as taxable income for which both the employer and worker have to pay taxes.

Under the bills, that would change.

The measures aim to expand a section of the tax code to treat up to $5,250 per year in employer contributions toward student debt as nontaxable income.

Proponents of the bill say the change could persuade more companies to offer assistance to employees.

“Student loan repayment would be a very attractive benefit that employers could offer,” said Kathleen Coulombe, a government affairs adviser at the Society for Human Resource Management, an industry group that worked with representatives on the bill, tells Bloomberg. “We anticipate that that number would definitely go up, should it be covered in section 127.”

In addition to assisting both companies and borrowers when it comes to taxes, bill sponsors say it would also reduce default rates for student loans.

“We’re looking at this as a longer-term solution,” Ashley Phelps, the communications director for Illinois Representative Rodney Davis, who introduced the legislation, tells Bloomberg. “If you don’t have this debt, then you don’t have as many at-risk borrowers that could default on their student loans.”

Soon Your Employer May Pay Back Your Student Debt [Bloomberg]

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.