A Potential Game Changer for Student Loan Debt: The Employers’ Participation in Repayment Act

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The $ 900 billion coronavirus relief program is expected to bring much-needed financial relief to Americans devastated by the COVID-19 pandemic. In the relief agenda, there is a transformative provision that will have far-reaching implications for the tens of millions of Americans burdened with student debt. It has the potential to reduce the total student debt burden by a third over the next decade.

The law on employers’ participation in reimbursement

The law on employers’ participation in reimbursement was initially adopted as part of the CARES law in March 2020 at the start of the COVID-19 pandemic. It was extended until January 2026 as part of the second COVID-19 relief bill in December 2020.

History of the Act respecting employers’ participation in reimbursement

As CEO and Founder of FutureFuel.io, I wrote about policy innovation designed to crush student debt as early as Spring 2019. To address America’s second category of household debt, Reps Scott Peters (D -CA) and Rodney Davis (R-IL) led a bipartisan group of over 100 members in introducing the Employers’ Reimbursement Participation Act in early 2019.

Since then, Congressmen Peters and Davis have inspired more than 271 co-sponsors to support the bill.

Across the Capitol, Senators Mark Warner (D-VA) and John Thune (R-SD) led a bipartisan group to present a complementary bill (S460) to the Peters-Davis bill in the Senate. Senator Warner and Thune have inspired more than 64 co-sponsors on both sides of the aisle.

The role of the employer

So what exactly does this provision mean for the millions of American employees burdened with student debt? This provision allows employers to match payments made to repay student debt by employees, tax-free.

In other words, just as employer contributions to tuition reimbursement and assistance programs are exempt from payroll and income taxes, the same tax protections would apply to student debt contributions. of an employee.

In fact, this provision allows the tax-exempt $ 5,250 that employers can contribute annually to tuition assistance to cover the cost of education that employees already have.

Seventy-one percent of employers currently have funds allocated to reimburse tuition fees, however, over ninety percent of employees who have access to them do not use the funds. Employers can now access these funds in a shared piggy bank model across the range of past and future eligible education expenses.

With this legislation in place, both employees and employers have an incentive to help American workers pay off student loan debt, so they can focus their efforts on their financial goals and long-term well-being.

This bill could not have come at a better time for borrowers and employees facing repayment. The passage of this provision frees up 143 to 206 billion dollars of eligible annual funds (allocated but previously unused) to repay student debt.

Why is it necessary

In the early 1990s, over 95% of households were not affected by student debt at all – today that number is only approaching 60%. The dramatic changes we have seen over the past 30 years have had a profound impact on our society and our economy as a whole.

For context, no other category of debt (mortgages, credit cards, auto loans, etc.) has increased so rapidly over the same period in the number of households affected.

A game changer for borrowers

For the average student loan borrower, the employer’s repayment is more than double their monthly student loan payment. Making the most of the funds will save the average borrower over $ 30,000 and get them out of debt twice as fast.

Laurel Taylor is the founder and CEO of FutureFuel.io. Laurel’s vision has been steadfast since the company was founded in 2016. Laurel envisioned a new standard in the workplace, one that would provide benefits that would address student debt, as well as help with tuition fees. retirement savings, serving all employees in terms of financial health and well-being. Laurel’s personal experience with student debt continues to drive her relentless quest to resolve this issue, in partnership with employers, policy makers, financial institutions and academia.

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