Bills
| 3.23.22

Should Employers Be Able to Make Tax-Free Contributions to Reducing Employees’ Student Loan Debt? (H.R. 1043)

Do you support or oppose this bill?

What is H.R. 1043?

(Updated June 18, 2020)

This bill — the Employer Participation in Repayment Act of 2019 — would expand the tax exclusion for employer-provided educational assistance to include payments of qualified education loans by an employer to either an employee or lender. This would apply to the first $5,250 of employer-provided student loan assistance money each year.

Argument in favor

Student loan debt is a major financial burden for young workers, many of whom are struggling to repay their loans right out of school. There currently aren’t many employers offering student loan repayment assistance — but making student loan repayment assistance tax-free (up to $5,250 per employee each year) would increase employer interest in offering this particular benefit.

Argument opposed

While the burden of student loan debt is substantial, offering a tax break to companies that help their employees pay down their student loans would cost the federal government in terms of lost tax revenue, which would increase the deficit. Individuals took out their loans and they should repay them without help from employers via tax incentives.

Impact

Workers; employers; student loan debt; student loan financing companies; financial institutions; and the tax system.

Cost of H.R. 1043

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Rep. Scott Peters (D-CA) reintroduced this bill from the 115th Congress to incentivize employers to offer student loan assistance to help their employees pay of college debt:

“I relied on student loans to get through college when the cost of higher education was much lower than it is today. Now, the collective debt among people in the U.S. is more than $1.5 trillion dollars, which hurts economic growth. Many employers have successfully helped their employees pay down their debt, and encouraging similar programs across the country can move us closer to solving the student debt crisis. Our economy benefits, too, when young Americans begin making investments like buying a home, starting a family, or saving for retirement. I appreciate Rep. Davis’s commitment to tackling this important issue.”

Original cosponsor Rep. Rodney Davis (R-IL) adds that this bill is badly needed, given the magnitude of the U.S.’ student loan debt problem:

“Student loan debt is now the second highest form of consumer debt and prevents many in the workforce from fully contributing to our economy. Student loan debt is such a major issue that some private companies have found that offering a benefit to help employees pay down their student loans has allowed them to recruit and retain young talent. Our bill simply builds on this private-sector approach to addressing the student loan debt crisis in this country by allowing this benefit to be tax-free to both the employee and the employer. This innovative approach to student loan debt that has the potential to be the 401(k) of student loans and help millions of graduates who are struggling with student debt.”

The National Association of College and University Business Officers (NACUBO) supports this bill. Its President and CEO, Susan Whealler Johnston, says:

“The benefits currently offered by Section 127 of the tax code are an important tool for employers to attract the best possible employees and build a skilled workforce. While Section 127 is currently a valuable tool in supporting U.S. competitiveness it could, upon passage of the Employer Participation in Repayment Act, become the benefit of choice for tuition assistance and loan repayments among employers. Expansion of Section 127 would benefit employers, employees, students, and families, and help both institutions of higher learning and the U.S. workforce retain a top spot on the global stage.”

Gradifi — a unit of First Republic Bank that's a leading provider of student loan and college saving employee benefits — supports this bill. David Chang, Gradifi’s CEO, says:

“The Employer Participation in Repayment Act is game-changing legislation that will provide the opportunity of relief for millions of Americans struggling with student loan debt and will motivate many more employers to offer a student loan repayment benefit. Excluding employer student loan payments from gross income will make this employee benefit more affordable and has been the missing incentive preventing many companies from offering this benefit… Allowing employees to receive a tax-free student loan repayment contribution from their employers will enable individuals to pay off their loans faster, saving thousands of dollars in the process. We strongly urge Congress to move quickly to pass this much-needed, bipartisan legislation and allow employer-provided student loan benefits to be tax free for employees.”

Katie Berliner, an account executive at YouDecide, a voluntary benefits outsourcing company in Atlanta, suggests that making student loan repayment assistance tax-exempt would increase its uptake by employers. Berliner predicts, “When the [student loan repayment] benefit receives tax-favored status, more companies will start making contributions.”

Some critics have pointed out that this bill would be quite expensive, as it’s a tax break on a large scale. However, Chris Walters, CEO of Gradfin, a student loan repayment and management tech platform, says this misses the point:

“The federal government, meaning taxpayers, are already losing plenty in terms of defaulted student loans, and income-based plans that will be forgiven. Congress should be worried about those losses. If the private sector comes in and improves debt repayment the [f]ederal government is going to get paid more."

This bill has 103 bipartisan cosponsors, including 71 Democrats and 32 Republicans, in the current session of Congress. When it was introduced in the 115th Congress in 2017, it had 129 bipartisan cosponsors, including 78 Democrats and 51 Republicans, but didn’t receive a committee vote. Its Senate version, introduced by Sen. Mark Warner (D-VA), had 24 bipartisan cosponsors, including 13 Democrats, 10 Republicans, and one Independent. In the 114th Congress, both House and Senate versions were also introduced.

The National Association of College and University Business Officers (NACUBO), Association of Community College Trustees, The Association of Big Ten Students, the Society for Human Resource Management (SHRM), and Gradifi support this bill.


Of Note: One in four Americans has student loans, and student loan debt in the U.S. reached $1.5 trillion in 2018. The average 2016 graduate owes $37,000 in student loans, and 2017 graduates owe an average of almost $40,000. According to the CBO, in the 2015-2016 academic year, 37 percent of undergraduate students borrowed through federal student loan programs, with an average loan amount of $19,000; and 40 percent of graduate students borrowed an average of $63,000 (including their undergraduate borrowing).

In recent years, a number of high-profile companies, including Pricewaterhouse Cooper (PwC) and Fidelity, have begun offering student loan repayment assistance to their employees. However, a WorldatWork survey in January 2017 found that only four percent of employers overall provided loan repayment assistance. In a survey by Student Loan Hero in March 2018, young workers expressed a significant preference for student loan repayment benefits in lieu of 401(k) matching and health care benefits. In a 2017 American Student Loan Assistance survey, 86 percent of young workers said they’d commit to their employer for five years if it helped pay off their debt.

Currently, employer loan contributions are considered taxable income, which means that employees receiving this benefit need to pay tax on the money their employers provide to help with their loans. This differs from tuition reimbursement benefits, which are tax-free up to the first $5,250 a year.


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / zimmytws)