$1.5 Trillion-that is with a T. That is the amount of student debt currently owed by more than 40 million Americans, about 70% of whom are college graduates. One in ten borrowers are at least 90 days delinquent on their loans. No wonder economists and others believe it may be the next big bubble to burst.
With this in mind, members of Congress recently proposed a new bipartisan bill that would allow employers to pay down thousands of dollars a year tax-free toward employees’ student loan debt. Modeled after 401k retirement savings plans, the bill permits as much as $10,000 per year in tax-free contributions towards employees’ student loan debt. If the bill passes, it might be a first step toward alleviating a major obstacle for college graduates.
As of today, Section 127 of the Internal Revenue Code grants employers and employees tax-free tuition reimbursement up to $5,250, but not for tax-free student loan repayment. The newly proposed bill would extend the benefit’s scope and cap, giving employers another tool to attract and retain talented workers who have taken on crippling debt. Some businesses already offer student loan assistance to their workers in order to attract millennials in a competitive market. However, the number of companies supplying the benefit remains relatively small — around 4%. With a substantial tax write-off, the new bill would allow many more employers to extend this benefit to young indebted workers in what the legislature hopes would be a win-win for employers and employees.
Extending tax breaks for student loan repayments would “not only assist the employee in their career endeavors, but assures that employers remain globally competitive,” said Kathleen A. Coulombe, a senior associate with the Society for Human Resource Management. With support from Democrats and Republicans, something may come out of Congress in the near future.
*Special thanks to Thomas Raine, who assisted in the drafting of this post. Thomas is a third year Juris Doctor Candidate at the University of Miami School of Law.