Yes.  Employers who already provide educational assistance programs under Internal Revenue Code Section 127 (Section 127) may amend their Section 127 plan to allow for either:

  • direct payments to an employee’s student loan lender; or
  • payments to the employee with the student loan, to pay for principal and interest on a “qualified education loan.” 

If monies are paid to the employee, the employee will have to provide the employer with documentation of his or her student loan payments.

A “qualified education loan” is a loan incurred by an employee for higher education expenses (i.e., tuition, textbooks, fees) for a degree or certificate program typically carrying at least  ½  a normal full-time course load.

Loans for an employee’s spouse, dependents or children are not covered.

No, these payments are not considered a taxable benefit to the employee. This is a tax-free payment of student loans for employees.

No, these tax free student loan payments by employers are completely optional.

Employers can provide up to $5,250 of ta- free repayment of an employee’s qualified education loan before January 1, 2021.

Employers without existing Section 127 plans can adopt a written plan in 2020 to provide this student loan payment benefit to their employees with qualified education loans.

An employer student loan payment program cannot discriminate in favor of highly compensated employees. 

Employers who decided to adopt a Section 127 plan or amend an existing Section 127 plan to may such payments must notify employees or the existence of the new Section 127 plan or the change to the existing plan.

Employees cannot be given the choice of receiving cash and the student loan payment. Nor can the student loan payment benefit be part of a cafeteria plan.