Should Employers Be Allowed to Make Tax-Free Contributions to Reducing Employees’ Student Loan Debt? (S. 3595)

What is S. 3595?

(Updated December 20, 2018)

This bill — the Student Loan Repayment Acceleration Act — would exclude employer contributions to student loan repayments from business income for tax purposes. It’d allow employers to make contributions of up to $10,000 a year towards each employee’s student loan debt free from payroll, income, and federal unemployment tax. Employers would be free to choose from a variety of ways to structure these payments, including simply making the payment or requiring the employee to make a payment that the employer “matches” (similar to 401K matches).

Sole-proprietors, employed, and self-employed individuals would be allowed to claim student loan debt as an above-the-line deduction of up to $10,000 a year. They would, however, not be allowed to claim double benefits via the student loan interest deduction.

Argument in favor

Student loan debt is a growing problem in the U.S., and it’s making it harder for recent graduates to get ahead, start saving for the future, and secure their financial futures. Employers who want to help their employees with student loan debt should be incentivized to do so.

Argument opposed

This legislation would likely have a major impact on federal tax revenue. Given that the country is already in a budget deficit, it’d be fiscally irresponsible to extend tax concessions to businesses simply for helping pay down student debt.

Impact

Holders of student loan debt; employers; and the Internal Revenue Service.

Cost of S. 3595

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sen. Cory Gardner (R-CO) introduced this bill, which is based off the current format many employers use to contribute to employees’ 401K plans, to allow employers to make tax-free contributions of up to $10,000 toward employees’ student loans each year:

“Student loan debt makes it harder and harder for graduates to get ahead. I’m hopeful my legislation can make it easier to pay off loans by allowing employers to contribute to their employees’ student loans like many do for 401k plans. Every little bit helps and this can be a model for further policies to deal with the growing problem of student loan debt.”

Rachel Beck, vice president of the Colorado Springs Chamber and Economic Development Corporation, supports this legislation as a way to support her area’s high demand for highly-skilled workers:

“Th[ere] are jobs that require a lot of education, and a lot of education means a lot of debt. So we are, in the Pikes Peak Region, potentially looking at a lot of employees that could benefit from this proposal… If you’re an employee, and you’re comparing two different job offers, and one of them includes another $5,000 to $10,000 benefit, that’s a pretty significant boost for one over the other.”

Wayne Thorsen, SVP of marketing and brand partnerships at SoFi, argues that student loan assistance should be a “401(k) of the future”:

“People often face a hard choice between saving for retirement or paying down student debt when the answer is they should and can do both. We think about this employee benefit as a 401(k) of the future… The Millennial generation, now the largest percentage of the workforce, are starting their careers with record-setting student loan debt and deferring important priorities like retirement savings or buying their first home.”

A number of companies, including Fidelity, Hewlett-Packard Enterprises, PwC, Esté Lauder, Abbott, and IBM, already offer some form of student loan assistance. Increasingly, companies are using student loan assistance as a benefit to attract job candidates.

Rep. Julia Brownly (D-CA) introduced legislation similar to this last year. Her bill, which would have created a special business tax credit for employers who try to help their workers pay off their debts, has gone nowhere, largely due to concerns about the reduction in federal revenue that would be produced by this legislation.

Of Note: According to the National Association of Realtors, about 45 million Americans have student loans to repay. In 2014, seven out of 10 college graduates had student loan debt. The average student has around $30,000 in debt, and a fifth of those with student loan debt owe over $100,000. Collectively, Americans owe a record $1.5 trillion in student loans, according to Federal Reserve data from the second quarter of 2018.

Today, the average U.S. household has 828% more student loan debt than in 1999, and student loan debt is the leading type of debt for American households.

Media:

• Sponsoring Sen. Cory Gardner (R-CO) Press Release
  
• KOAA News 5 - Coverage of Colorado Springs Chamber and Economic Development Corporation (In Favor)
  
• Forbes (Context)
  
• Axios (Context)
  
• Bizwomen (Context)