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Eliminate up to $26,250 of your Student Loan with this Tactic Thumbnail

Eliminate up to $26,250 of your Student Loan with this Tactic

The Little Known Tactic that could pay down up to $26,250 of your Student Loan

 

What if there was a benefit at work that could help pay down your student loan? What if there was a way to do it with money you did not have to pay taxes on? There is and you might be able to take advantage of it. There’s a provision in the Stimulus 2.0 bill that could make an astounding impact on your student loan balance over the next few years. Keep reading for the details and how to go about it.

 

Background

The Stimulus 2.0 Bill, passed in December 2020, was over 5,000 pages long! The official name was the Consolidated Appropriations Act of 2021. It’s also been called the second coronavirus bill, COVID Bill, and a host of other names. A little heralded provision in the bill, related to student loans, could be a significant benefit to Americans who are working to pay down a balance on college debt.


"The rich rules over the poor, and the borrower is the slave of the lender." Proverbs 22:7 ESV

 Average American student Debt Balance

According to ValuePenguin as of January 2021


What is this student loan benefit?

This IRS provision allows an employer to offer a benefit that pays down the college loans of employees.

 

The Return

If you heard this IRS rule in the past, you aren’t imagining it. The Stimulus 1.0 or Cares Act had this benefit as well. The problem was the benefit was only put in place for one year (2020). In a hectic year, very employers opted to offer the benefit. The new legislation means this benefit, while not permanent, is in place until the end of 2025.

 

What are the benefits for you?

This might seem obvious, but details count here. Money from you employer that comes in addition to your normal salary already seems great, but there’s more. Normally, for every additional dollar your company pays you, you expect to owe taxes. These special payments are exempt from taxes. The opportunities to get more money as part of your benefits package and also exempt from taxes are few and far between, but this qualifies.

 

 

What are the benefits for your employer

Employers that have offered assistance with student loans in recent years have shown positive movements in employee morale, recruiting, and retention. Beyond that, employees with a better financial situation tend to be more productive. The tax benefits extend to employers as well. Normally, your company owes the government payroll taxes for every dollar they pay you. These student loan payments are exempt from this requirement. In other words, your employer can offer additional compensation to employees and avoid paying additional taxes.

 

How does it work

 

Will my company offer the benefit?

Like any other benefit and the choice to offer it as part of employee benefits, it’s completely up to them. Keep reading for ideas on how to ask HR and gently encourage them to offer the benefit.

 

How much can I get towards my student loan?

The law allows up to $5,250 per year to receive the special tax treatment. After a company chooses to offer this benefit, they could offer anything at that level or below. Could they choose to offer the benefit and only give $10 per year? Yes, it’s completely up to them.

 

What kind of loan can this money go toward?

To qualify, your student loan needs to be a “qualified education loan” in the eyes of the IRS and Uncle Sam. Your benefits department could ask for documentation to prove this such as a statement. Most folks who got a loan and used the money for college will likely qualify. IRS publication 970 has the specific details if you want to make sure. Both private and public student loans are eligible. 

 

How is the money paid?

The law allows companies to either reimburse you or make a payment directly to the lender. It’s HR’s choice on which path they will take.

 

Are there additional requirements?

Yes, just like other benefits, your workplace can put conditions in place up to a point. The most common requirement is length of service. For example, a company could require that you work for the organization for 6 months before participating in a student loan program like this.

 

 

How to ask your employer or HR contact about this student loan provision

 

Look at benefits resources

For midsize or large companies, you probably have an internal benefits website or literature. Check this information to see if you company offers a student loan reimbursement program. It might be there already, and you might have missed it.

 

Ask HR directly

Contact HR and ask about the program. If they already do or have it in the works, ask for details on how you can learn more. If they don’t, feel free to share this post or relay how much you would like to see it.


Templates you can use to contact HR

Clients of Intrepid Eagle Finance are getting help with how to communicate with their employer on how to participate in plans like these. We're helping with deciphering the terms, enrolling, or even how to ask HR to provide a plan if they don't right now. Get a preview with some of the templates below for download. 


Download the template


Knowing what to ask could be the difference in eliminating a student loan years sooner that you might otherwise. 


Can this work for a business I own?

No, congress specifically prohibited the ability to use this provision for a company you own. Specifically, the rules are written to restrict anyone who owns more than 5% of a business. If you’re unsure if this might apply or not, a qualified attorney or other professional could help sort this out for you.

 

Will this rule exist after 2025?

For this rule to continue in 2026 and beyond, congress would need to extend it. Will they do that? Your guess is as good as mine.


More: Stimulus 2.0 Recovery Rebates and More


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