The new stimulus bill signed into law by President Trump on Sunday didn’t extend the student loan payment pause, but it will still impact student loans as another provision preserves the tax-free status of employer-sponsored student loan repayment programs.
These programs, which have become an increasingly popular as employers try to help workers struggling with student loan debt, are often incorporated into financial wellness offerings.
The $900 billion COVID-19 relief and $1.4 trillion federal spending package to fund government agencies notably did not address the student loan payment pause, meaning that the freeze on student loan payments and collections is still set to expire on Feb. 1, 2021.
The pause, enacted by the CARES Act in March, was originally set to expire on Sept. 30, but was extended by President Trump through Dec. 31, and extended again earlier this month by Secretary of Education Betsy DeVos through January 31.
While President-Elect Joe Biden may very well take up the issue within days of taking the oath of office in January and could even be planning to forgive some student loan debt, the new stimulus bill extends a provision that allows employers to treat up to $5,250 per employee in student loan payments the same way they would wages—as a deduction—and allows employees to receive the money tax-free. The provision was set to expire on Jan. 1, 2021 but the new bill stretches it for five years.
Gradifi by E*TRADE, a student loan payment benefit administrator, released a statement today applauding Congress’ decision to extend the provision allowing employers to continue to make tax-free contributions toward eligible education expenses, like tuition or student loan assistance, without raising the employee’s gross taxable income.
“Since this legislation was enacted interest in and engagement with workplace student loan repayment programs has grown meaningfully, and we’ve seen that the tax treatment has had the positive impact it intended,” said Kate Winget, Managing Director, Head of Participant Engagement and Experience for Morgan Stanley at Work, which includes Gradifi by E*TRADE. “It is a huge win that this legislation has been extended, but our work is far from over. As the adoption of this benefit grows, we must continue our push to make this important tax treatment permanent.”
Prior to the tax-free status of employer-sponsored student loan repayments, both employees and employers faced tax obligations, with the employee paying tax on the employer contribution. This law removes barriers for companies to enhance their employee financial wellness, recruitment, and retention offerings with pre-tax student loan repayment, and helps empower employees to pay down their debt balances faster.
It should also be noted that the bipartisan “Securing a Strong Retirement Act of 2020,” also called SECURE 2.0, that was introduced in the House in late October, includes a provision that would allow individuals to pay down a student loan instead of contributing to a 401k plan and still receive an employer match in their retirement plan.
SECURE 2.0 is expected to be reintroduced in Congress during the 2021 session.
SEE ALSO: Student Loan Debt on Front Burner for Biden?
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
