Employer Participation in Student Loan Assistance Act H.R. 795

Last Updated on August 3, 2023

Nothing could be better than working for a top company that helps you pay off your student loans, right? Well, a bill was introduced by Rodney Davis (R-IL) and cosponsored by House members on both sides of congress in 2017 that is trying to make this a reality. 

The bill was introduced as the Employer Participation in Student Loan Assistance Act. In addition to the introduction of this Act, the Internal Revenue Service (IRS) also released a private letter ruling. What could these events mean for companies and employees who carry student loan debt? 

Employer Participation in Student Loan Assistance Act

H.R. 795 was written with employer student loan forgiveness in mind. 

The proposed amendment would add qualified student loan payments to the list of tax-exempt benefits employers can offer. That means if your employer helps you pay down your student debt, they may receive certain tax breaks in the process, making it a win-win for both you and your company.

The bill would make tax exemptions for employer student loan assistance payments made to you or to your lender.  

IRS Private Letter Ruling 

Recently, there was a private letter ruling released by the Internal Revenue Service (IRS). If you want to review the contents of the private letter ruling, it can be found here. The ruling allows employers to use 401(k) plans to help employees pay down their student loan debt. It is done by taking the employer 401(k) match to pay down student loans. 

Any employee who is eligible for a 401(k) plan would be eligible for this plan. The ruling states that the plan is a voluntary program that employees must elect to enroll. Employees who choose to participate in this plan would be eligible for non-elective contributions made by the employer to their student loan debt. These contributions would be equal to what would have been contributed to a 401(k) plan had the employee opted out of the program. 

What Does Student Loan Debt Assistance Mean for Employers?

When managing a business, it is imperative that you stay on top of recent news. Part of staying on top of things includes understanding what challenges your employees face. Both these aspects of operating a business and understanding the needs of your employees, however, can fall hand in hand. When it comes to student loan debt assistance, it can be a huge positive for any business. Not only does student loan debt assistance help employees achieve their financial goals, but it also brings many benefits to a firm.

Employer contributions to student loans do not typically cost a company extra. The employer contributions to student loans are what a company would have typically made as a 401(k) contribution. Therefore the costs of providing 401(k) contributions and student loan debt assistance are equal. Another positive that comes from offering a program like this is that it helps with finding top talent, recruiting, and retaining all-stars. With older generations of employees retiring in record numbers and the workforce shifting to younger millennials, it’s important to take some time to examine the benefits of providing student loan debt assistance.

As many millennials have student loans and report that paying them down is a priority over saving for retirement, companies should begin thinking about reevaluating their benefits package to attract millennials. Finding ways to help this generation pay off student loans could be a big boost to a company’s recruiting strategy. Offering student loan payment assistance could put a company on the cutting edge as far as millennial professionals are concerned.

According to a benefits report by OneDigital, nearly 80 percent of employees surveyed by American Student Assistance felt that an employer-sponsored student loan repayment benefit would be a deciding factor in accepting a job. This could be a huge differentiator for an employer aiming to recruit the best employees.

The American Student Assistance survey also showed that 86 percent of employees would feel compelled to stay with an employer for at least five years in exchange for student loan repayment assistance. Considering how much companies spend on turnover (recruiting, training, and onboarding new employees), this could mean huge potential savings on talent management costs for employers.

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What Does Student Loan Debt Assistance Mean for Employees?

Some companies already offer student loan assistance, but these funds are usually taxed. This type of assistance isn’t as attractive as pre-tax funds because taxes reduce the impact of payments on student loans. Tax-free repayment funds from an employer could be more effective in helping graduates pay down their student loans faster. Employees would avoid incurring taxes associated with this type of assistance.

Many Millennials also face the question of, “Should I save for retirement or pay off my student loans first?” Student loan debt assistance could be a solution that addresses both concerns. Young employees would have the ability to make substantial payments towards their student loan debt. With these large payments, they will be able to cut down their repayment time. That means young employees would have the ability to start saving for retirement earlier in their careers instead of trying to pay off student loan debt.

Current Status of H.R. 795

H.R. 795 was introduced in 2017 with the goal of amending the IRS tax code of 1986. After being introduced, however, the bill was not put to a vote. Instead, it was referred to the House Committee on Ways and Means, where it remains today.

Employer Participation in the Repayment Act of 2019 (H.R. 1043)

H.R. 1043 is the most current legislation proposed to amend the IRS tax code of 1986, introduced in 2019 by Mark Warner (D-VA) & John Thune (R-SD). It proposed that employers should be able to contribute up to $5,250 tax-free to support their employees’ student debt repayment. 

In February of the same year, the House referred this bill to the Committee on Ways and Means, as well. 

Current Status of H.R. 1043

Under the CARES Act, Warner and Thurne, the senators that introduced the bill originally, succeeded in including an extension for tax benefits for employers contributing to employee student loan benefits until 2025.

According to the CARES Act:

• Employers can contribute up to $5,250 toward their employees’ student loan debt tax-free.
• Federal and private loans are eligible for assistance.
• Both principal and interest on qualified student loans are eligible for employer assistance.
• This change enables employers and employees to save on federal payroll taxes, and it enables employees to save on federal income taxes.

Looking to the Future of Employment and Student Loan Debt 

With the recent Employer Participation in Student Loan Assistance Act and IRS Private Letter Ruling, it seems student loan debt has become a problem for employees. With that in mind, not only may employers benefit from offering student loan debt assistance programs, but in many cases, these perks may come at little cost to the company.

With the CARES Act stipulations in place until 2025, experts speculate that employers may begin to rethink their benefits packages. As student loan assistance is a desirable perk, companies that wish to attract millennial employees and retain talent may become more competitive with this option in place.

While millennial employees may have greater competition when it comes to landing a position with a company that offers student loan assistance, they now have another factor to consider in choosing their employers.

Interested in starting a conversation regarding your student loans? Give us a call: 1-844-601-ELFI.