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June 25, 2021
Employee student loan repayment is ‘educational assistance’

A small, powerful provision was tucked into the CARES Act and extended until January 1, 2026 in December of last year. ‘Educational assistance,’ an established and authorized benefit, was expanded to include employee student loan repayment.

In theory, this change allows employers to pay up to $5,250 per year in student loans. Such payments would be deductible to the employer and not included in the employees’ wage income. Win-win!

However, for small business owners, there appear to be a few obstacles:

a) You need a written plan document.

b) The program cannot favor highly-compensated employees, and you cannot give employees an option to receive cash (or other benefits) in lieu of this educational assistance.

c) The program cannot provide more than 5% of its benefits during the year to shareholders or owners (or their spouses or dependents).

The last point is the major challenge. Most small businesses are owner-operated. A benefit program is unlikely to be adopted if the program does not benefit the owners, themselves.

For employees working at employers with an educational assistance program, check with your benefits department to see if the program now includes student loan repayment.

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