Student loan debt has exploded over the past decade. The average debt per borrower has nearly doubled since 2004, increasing from about $18,000 to more than $35,000 for a 2015 graduate. Not only is average debt rising, but more students are borrowing. Almost 71% of seniors graduated with a student loan in 2015, compared with about 64% 10 years ago.1

 

Towers Watson Media

Source: Mark Kantrowitz, Publisher of Cappex.com

As millennials become a larger share of the workforce, the student loan debt dilemma is attracting more attention from employers,2 and legislators have been responding with proposals that would allow employers to establish a variety of tax-preferred student loan repayment assistance programs.

For example, one recent proposal would permit employers to make matching contributions to an employee’s 401(k) account based on his or her student loan payments. Other proposals would allow employers to offer student loan repayment assistance to their employees on a tax-free basis, encourage employers to contribute to section 529 plans (education savings plans that help families set aside funds for future college costs) or provide incentives for employers to offer student loan benefits to employees. While these proposals did not move this year, the lawmakers behind them say they will continue their efforts during the 2017 – 2018 legislative term.

Legislators introduce student loan bills

Tax-free employer repayment. A number of bills have been introduced that would allow employers to provide student loan repayment assistance to employees on a tax-preferred basis. Several of the bills would expand Internal Revenue Code section 127 to permit employers to provide student loan assistance as well as tuition reimbursement, generally subject to the current $5,250 limit. Other bills would create a separate tax limit for student loan assistance, in some cases up to $10,000.

Employer 529 contributions. Lawmakers have also introduced bills to facilitate employer contributions to section 529 plans, expand the Saver’s credit to section 529 contributions and make other changes to help employees repay student loans or save for their children’s education.

Matching student loan repayments. To help employees who are not saving for retirement because of student loan debt, Senate Finance Committee ranking member Ron Wyden (D-Ore.) proposed to allow employers to make matching 401(k) contributions for employees who are paying off student loans. The provision was put forth as part of his Retirement Improvement and Savings Enhancements (RISE) Act, a draft retirement bill. The proposal would generally treat the employee’s student loan payments as an elective deferral to the 401(k) plan, and allow employers to provide matching contributions to employees who do not contribute — or who do not contribute enough to get a full matching contribution — while they pay off their student loans. Senator Wyden has said that he will continue to push for the provision during the 2017 legislative session.

Tax incentives for employer assistance. Representative Dennis Ross (R-Fla.) introduced the Student Loan Repayment Act (H.R. 6191). It would offer employers a tax credit to offset some of the costs of establishing student loan repayment assistance programs and allow employers to claim the Work Opportunity Tax Credit for employees who are repaying student loans.

Outlook

Growing interest from employers and lawmakers will keep student loan debt on the agenda for the 2017 – 2018 legislative term, and the sponsors of student loan repayment bills say they plan to pursue the legislation next year.


Endnotes

1. See “Who Graduates with Excessive Student Loan Debt?” Mark Kantrowitz, Publisher of Cappex.com, December 14, 2015.

2. See “Employers explore student loan assistance strategies,” Willis Towers Watson Perspectives, for more information on the range of student loan-related benefit offerings.