An Unpopular yet Tax-Exempt Method for Alleviating Your Student Debt

In a move that could provide significant relief for millions of student loan borrowers, employer educational assistance programs can now be utilised to pay off student loans. This option became available after March 27, 2020, according to the U.S. Department of Education.

These programs, which allow employers to provide tax-free financial assistance for certain education expenses, have gained traction among U.S. companies. Notable examples include large employers like Starbucks, who introduced such programs in response to the COVID-19 pandemic.

Payments made directly to the lender and those made to the employee qualify for tax-free employer assistance. This means that borrowers can benefit from this aid without incurring additional tax burdens. The IRS considers employer-sponsored student loan repayment assistance as tax-free for the employee.

The assistance provided by the employer cannot favour highly compensated employees. The maximum annual exclusion for tax-free educational assistance an employer provides, per employee, is $5,250. Amounts above this limit could be subject to tax as wages.

For those struggling with student loan repayments, this benefit not only provides a pathway towards debt relief but also gives employers the ability to recruit and retain high-quality talent, as stated by Virginia Sen. Mark Warner. He encourages employers to take full advantage of these programs as student loan payments resume for millions across the country.

The U.S. Department of Education offers income-driven repayment options, including the SAVE repayment plan, for borrowers who may need additional assistance. If no legislative changes occur, the ability to use educational assistance programs for student loan repayment would continue until December 31, 2025.

However, it's important to note that the assistance provided must be given under a formal, written educational assistance program sponsored by the employer. For more information, see IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits.

As of now, the "One Big Beautiful Bill" enacted on July 4, 2025, makes this option permanent and indexes it to inflation starting in 2026. This means that the benefits of these programs will continue to grow alongside the needs of borrowers, offering hope for those burdened by student debt.