2020 CARES Act: Repay employee student loans up to $5,250 tax-free, extended through December 31, 2025

The CARES Act provides pandemic relief for employers to help repay employee student loans through an amendment to Section 127 of the IRS Code, extended through December 31, 2025.

Employers who help repay employee student loans take a big step in forming lasting trust and partnership with valued staff.

Many employers want to assist employees in the challenges that come with the COVID-19 pandemic. Now, the CARES Act provides a temporary opportunity to help repay employee student loans.

The Coronavirus Aid Relief and Economic Security Act (the “CARES Act”) provides a way for employers to help repay employee student loans, with tax benefits for both the employer and employee.

Generally, a Section 127 Education Assistance Plan only allows an employer to pay or reimburse tuition and other qualified educational expenses incurred while the employee is with that employer.

Section 2206 of the CARES Act modifies Section 127 of the Internal Revenue Code so that employers can pay up to $5,250 to repay employee student loans during the pandemic emergency period beginning March 27, 2020, and ending December 31, 2025. The amount paid is tax-free to employees and tax-deductible for the employer.

The most recent COVID-19 relief bill, attached to the Consolidated Appropriations Act, 2021, approved December 21, 2020 extended the tax-free status of employer payments toward employee student loans through 2025.

An opportunity for employers through December 31, 2025

This temporary program differs from traditional Student Loan Repayment Programs (SLRP) offered by many employers in that the CARES Act relief is entirely tax-free to the employee, whereas SLRP payments are fully taxed, as much as 40% depending on the employee’s tax bracket and other factors.

It is, most likely, a one-time chance for employers to really make a difference for their employees, making it an excellent retention and recruiting tool in this difficult period.

Is the CARES Act program to repay employee student loans right for your company?

Chances are, if you have technical, managerial, or professional staff in your employ, you have workers struggling to repay student loans. Two-thirds of college graduates leaving school in 2018 had an average student loan debt of $29,200.

Unable to get out from under this debt in a reasonable time can be detrimental to your employees’ access to other credit, such as a mortgage, auto loan, and other household lending. This has a major impact not only on the employee’s quality of life but on wealth creation and the economy as a whole.

Taking advantage of this one-time chance to provide a much-needed tax-free benefit to help repay employee student loans can pay big returns for everyone.

Section 127 EAP requirement

The CARES Act employer-based student loan relief is provided through the employer’s Section 127 Educational Assistance Program (EAP), which is established with “a separate written plan of an employer for the exclusive benefit of his employees to provide such employees with educational assistance.”

This plan document requirement is easily met with the Core 127 plan document package. For a low, one-time fee of just $99, this package includes the formal written plan document, summary plan description, customized election, and claim forms, and more.

Even if the company already has a Section 127 EAP in place, the plan document must be updated to reflect the CARES Act student loan repayment opportunity.

Deluxe Binder Version

Education Benefits pay huge returns for everyone

$99 one-time fee in PDF via email*

$149 one-time fee in PDF email* + Deluxe Binder via USPS

A Section 127 tax-free Educational Assistance Program is the type of financial wellness benefit workers look for today. It helps them prepare for the future, which repays an extra reward when they stay with your company for many more years.

Core Documents provides employers with everything they need to establish an IRS- and DOL-compliant Section 127 Educational Assistance Program in PDF format for as low as $99. This cost reflects a one-time setup fee, not an annual charge.

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