🦸Not All Heroes Wear Capes: Tax Free Student Loan Benefits

Cares Act $5,250 student loan payment

In the wake of today’s economic challenges, employers are presented with a very timely opportunity to redefine their approach to employee benefits. One such game-changing provision is the tax-free student loan payment benefit offered under the Cares Act. By unraveling the specific provisions within the Cares Act and delving into the advantages of offering student loan repayment assistance benefits, this piece aims to provide actionable insights for employers seeking to enhance their talent acquisition and retention strategies for large employers and small business owners alike.

Understanding the Cares Act Provisions

In Section 2206 of the CARES Act Congress introduced a groundbreaking provision allowing employers to offer tax-free payments on qualified education loans to their employees. In the Consolidated Appropriations Act of 2021, Congress extended this benefit for 5 years ending December 31, 2025.

Here's how it works:

The student loan benefit is double tax-exempt, meaning neither the employee nor the employer must pay tax on the contribution. That's amazingly tax efficient. The employer gets a tax break, and so does the employee. Way to go Congress!

Ok, So What Are the Rules?

This benefit falls under existing section 127 of the Internal Revenue Code, which means:

  • The employer must have a written educational assistance plan.
  • The plan must not offer the choice between tax exempt payments or additional salary (cash or noncash).
  • The plan must not discriminate in favor of highly compensated employees (those making more than $155,000 a year in 2024).
  • An employee may not receive more than $5,250 in tax-exempt payments for student loan payments and tuition reimbursement programs combined.
  • Eligible employees must be reasonably notified of the plan.
  • No more than 5% of the benefit may go to owners.

It's pretty simple when offered correctly. You could use a flexible match program as a pathway to enable your employees to allocate employer dollars to their student loan payments up to $5,250 per year. Your employees can receive more than $5,250, but the additional dollars would be taxable as ordinary income. This presents a significant advantage for both employers and employees, as it not only aids in reducing employees' financial burden but also provides tax benefits for the employer.

Strategically Offering this Benefit as a Major "WOW" factor

Employers have a unique opportunity to align the offering of tax-free student loan benefits with broader employee financial wellness initiatives. By providing this benefit, employers can significantly enhance their employees' financial well-being, fostering a positive work environment and potentially increasing employee satisfaction and loyalty.

Employees improved financial wellness can lead to improved productivity, reduced financial stress, and a more engaged workforce. Having to repay massive student loan debt can create a lot of stress for employees, especially those who are not high-income earners. The constant worry about money can cause a negative toll on mental health. Ultimately, this can lead to distraction and anxiety, creating a negative impact on employees’ ability to do their jobs well.

Offering a benefit to help relieve your employees’ stress & increase their productivity is certainly a “win” all around.

Furthermore, offering tax-free student loan benefits can position employers as forward-thinking and empathetic, enhancing your brand and attractiveness to potential recruits. As of 2023, the average millennial borrower has an outstanding student loan balance of over $42,600. Millennials account for almost half (47%) of the nation’s outstanding student loan debt. Modernizing your benefits to appeal to younger employees will serve as a strategic investment in the long-term financial stability and satisfaction of employees, ultimately contributing to a more robust and loyal workforce.

Once You Decide "YES" to Student Loan Benefit, You Have to Determine "HOW"

Implementing tax-free student loan benefits under the Cares Act necessitates a thorough understanding of compliance considerations and best practices. Here are key points to consider:

  • Legal Compliance: Ensure that the implementation of the benefit aligns with the specific regulations outlined in the Cares Act and other relevant legislative provisions.
  • Communication Strategy: Develop a clear communication plan to inform employees about the availability of this benefit and the process for availing it.
  • Integration with Existing Benefits: Integrate the tax-free student loan benefits seamlessly within the organization's overall benefits framework to maximize its impact and accessibility for employees.
  • Student Loan Platform: Choose your student loan benefit platform wisely. A great platform will take the stress off the employer, offer multiple program options to align with different budgets, offer other financial wellness benefits, provide student loan advisory services to your employees, and be cost-effective.


Employers are urged to seize the opportunity and take full advantage of this tax-free student loan benefit before the law expires. By strategically leveraging this benefit, employers can enhance employee financial wellness and gain a competitive edge in the talent market. The implementation of this benefit aligns with broader employee financial wellness initiatives, contributing to organizational financial wellness and potentially increasing employee satisfaction and retention. As employers navigate compliance considerations and best practices, they can ensure the seamless integration of tax-free student loan benefit. If you’d like to explore your options, we’re here to help.