CARES Act: What You Should Know About Employer Student Loan Repayment

The Coronavirus Aid, Relief and Economic Security (CARES) Act provided sweeping relief to tens of millions of Americans at the start of the coronavirus pandemic. But while much was made of the federal government's decision to pause federal student loan payments, another valuable student loan provision didn't get as much fanfare.

In particular, Congress added Section 2206 to the stimulus bill, which created a temporary tax-exempt provision for employer student loan repayment assistance programs. 

Here's what you should know about how the provision works and why it's so important.

How the CARES Act Changed Employer Student Loan Repayment Assistance

Section 2206 of the CARES Act allows employers to provide up to $5,250 in tax-free student loan payments on behalf of their employees every year. In other words, the money is exempt from taxes for both the employer and the employee.

Employers can make the payments directly to their employees' student loan servicers or lenders, or they can provide them to the employees themselves, who can then put them toward their student debt. 

This tax break is combined with the tuition reimbursement tax break, which has been around since 1978 and was made permanent when Congress passed the American Taxpayer Relief Act in 2012. 

In other words, employees can receive up to $5,250 in combined benefits between student loan repayment assistance and tuition reimbursement from their employers and not have it counted as taxable income.

The CARES Act provision was set to expire at the end of December 2020, but Congress passed the Consolidated Appropriations Act before that happened, extending the tax break through the year 2025.

Student loan repayment assistance programs have been around for some time, but they've increased in popularity in recent years. Some companies have even gotten creative with their approach. 

For example, employee benefits provider Unum allows employees to convert up to 40 hours of carryover paid time off every year into student loan payments. And Abbott Laboratories incentivizes workers to pay down their student loans by offering a contribution worth 5% of their salary toward their retirement account if they pay at least 2% of their salary toward student loans.

Why Employees Want Help With Their Student Loans

Student loan repayment assistance is becoming increasingly popular among workers in the U.S. The aggregate student loan debt in America has reached an all-time high of $1.75 trillion, according to the Federal Reserve, and it's showing no signs of slowing.

Numerous studies have shown that student loan debt has not only crippled younger generations financially but also caused myriad other problems, including mental health difficulties and marital strife. 

While student loan repayment assistance isn't necessarily at the top of many employees’ wish lists — remote work, a generous vacation policy, paid family leave and a handful of other perks were ranked higher, according to a 2020 survey by Unum — allowing companies to provide payments to student loan servicers or to their employees directly can make a big difference, especially for employees who are struggling with other financial hardships.

Specifically, if an employer pays the money directly to the employee, the worker isn't bound to use the money to pay down their student loan debt. But they'll still benefit from the tax-exempt status of the funds.

That can be particularly beneficial for student loan borrowers who are working toward forgiveness and wouldn't necessarily benefit from paying down their debt more quickly. It could also give student loan borrowers more flexibility, allowing them to decide how much to put toward student loan debt and how much to put toward other important financial obligations and needs.

Adding the benefit could also work to the employer's advantage as it tries to compete with other companies to recruit and retain top talent. 

Which Companies Offer Student Loan Repayment Assistance

According to a 2019 survey by the Society of Human Resource Management, 8% of employers offered student loan repayment assistance to their employees. Just two years later, a survey conducted by the Employee Benefit Research Institute found that the figure had more than doubled to 17%, with 31% more employers claiming that they planned to implement the benefit for their workers.

While it would be impossible to provide a comprehensive list of all the companies that offer this perk, here are some of the major employers that offer student loan repayment programs:

• Abbott Laboratories
• Aetna
• AlloSource
• Andersen Global
• Campus Philly
• Chegg
• CommonBond
• Connelly Partners
• Estee Lauder
• Fidelity Investments
• First Republic Bank
• Google
• Hulu
• Kronos
• Live Nation
• New York Life
• Nvidia
• Penguin Random House
• PricewaterhouseCoopers
• Public Prep
• Pure Insurance
• RubiconMD
• Staples
• The Goddard School
• U.S. government

Note that each program will vary in how payments are made and what you need to do to be eligible. For example, you may need to have worked with the company for a set period of time before you can qualify. Also, each company has its own approach to how much to contribute on a monthly, annual and lifetime basis.

The Bottom Line

If you're an employee with student loan debt, consider notifying your employer about the new benefit that allows them to help you pay down your balance on a tax-exempt basis. If you're in the market for a new job, consider student loan repayment assistance as a priority as you compare opportunities. 

Make sure you read the fine print, though. Many employers don't come close to the $5,250 maximum, and some may require you to be with the company for a year or two before you can benefit.

Finally, it's important to look into other opportunities to pay down your debt faster and save money. For starters, refinancing your student loans may be helpful if you have private loans or even if you have federal loans and don't plan to take advantage of forgiveness programs or income-driven repayment plans.

If you join Juno, we'll help you secure the best rates by negotiating on your behalf with lenders. It's free to join and takes just a few minutes to get started.

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