New Legislation Will Give Employers Tax Breaks To Help Pay Down Employees’ Student Loan Debt
Posted By Donna Fuscaldo on November 20, 2015 at 12:16 pm
Employers have long gotten a tax break for helping pay for higher education for their employees. But a new bill, introduced last year and assigned to a congressional committee at the end of October, hopes to take it further by giving them a tax break for helping pay off student loan bills, too. Called the Employer Participation in Student Loan Assistance Act, the goal is to encourage businesses to help employees who are struggling with mountains of student loan debt. The bill is particularly timely, as politicians, educators, non-profit and for-profit companies alike look at ways to solve the student loan crisis.
Consider this: According to the Federal Reserve, the current student loan debt stands at $1.3 trillion. What’s more, MarketWatch estimates that the amount of student loan debt rises $2726.27 per second. Student loan debt now exceeds auto loans, credit card and home equity debt, making it the second-largest debt for U.S. households, following mortgages. The impact of all this student loan debt is reverberating through every age group, and it’s impacting everything from home ownership to retirement. A recent American Student Assistance survey found that 73% of respondents have put off saving for retirement and making other investments because of student loan debt, while 75% indicated that student loan debt was an impediment to purchasing a home.
Bill enables companies to kick in money to pay down debt
The Employer Participation in Student Loan Assistance Act, which was introduced by U.S. Representatives Rodney Davis (R-IL) and Gwen Graham (D-FL), would provide a new tool to help employers recruit and retain workers, allowing companies to help employees pay back their student loans with pre-tax dollars. The bill currently has eight co-sponsors. “Seven in ten college seniors last year graduated with student loan debt – which now represents the second highest form of consumer debt,” said Davis in a press release in announcing the legislation. “The Employer Participation in Student Loan Assistance Act encourages employers to be part of the solution by allowing them to offer an employee benefit that will help graduates pay down their student debt. With outstanding student loan debt totaling more than $1 trillion, we must find ways to engage the private sector and help graduates manage their debt.” Davis’ district includes eight four-year colleges and universities and five community colleges, and is home to around 150,000 college students.
Under the proposed legislation, employees would get a tax-exempt benefit of up to $5,250 a year to pay down their student loan debt, while employers can deduct the subsidiary that is provided to employees. Companies will be able to use the benefit as a recruitment and retention tool at a time when talent wars are heating up for sought after skills. Currently, the Employer Education Assistance Program lets companies contribute pre-tax earnings to help employees seek out higher education, but does not help employees who are already saddled with student loan debt.
Some companies already tackling the problem
The Employer Participation in Student Loan Assistance Act comes at a time when at least one large company is already trying to address student loan debt by offering to pay some of it down. Global consulting firm PWC has teamed up with Gradifi, a new start-up out of Boston that created a platform that enables companies pay some of their employees’ student loan debt back for them. Starting in the spring of 2016 PWC will deposit $100 a month into a Gradifi account, which will then go directly to the lender, to help pay down an employee’s debt. PwC plans to do that for six years, or until the employee makes partner. With a six-year track to manager being the norm, employees could see their student loan debt reduced by a total of $7,200. The average age of employees at PWC is 29, and the consulting firm hires 11,000 employees from college campuses each year.
Will it get passed?
While any legislation that helps people get out from under student loan debt is likely to be welcomed by consumers, whether or not the bill will gets passed in Congress is up for debate. According to financial aid expert Mark Kantrowitz, while there is high interest in the topic, the chances of passage at the current time is low, even if it has bipartisan sponsors. “There is a relatively low bar for members of the House to introduce legislation, most of which is not reported out of committee,” says Kantrowitz. “But there are only 8 co-sponsors, which is low for the House. The real test will be whether the bill is reported out of committee.” Kantrowitz pointed to similar legislation introduced a few years ago by Rep. Steve Israel (D-NY). The idea behind that bill was to allow employers to provide loan repayment assistance or forgiveness of up to $5,000 per year, but the legislation never made it out of committee. However, Davis’ bill is a cleaner approach to the idea, notes Kantrowitz. “A lot will depend on whether constituents and employers apply enough pressure to members of Congress on student loan issues to get Congress to act,” he says. “If they do, the legislation will gain momentum. But, right now, it is too soon to tell.”