More than 43 million people have federal student loan debt. And in recent years, many borrowers resumed making student loan payments — with interest — after an unprecedented multiyear pause.
Under the Biden administration, the U.S. Department of Education offered programs, including income-driven repayment options like the SAVE repayment plan, to help lower payment amounts. (Though some of those options will change under the new Trump administration.)
Additionally, the IRS reminds borrowers (and employers) about a lesser-known, tax-free way to get help with student loan repayment.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
"The IRS wants to remind both employers and employees about this special feature that can help with student loans," former IRS Commissioner Danny Werfel said in a statement urging employees and employers not to overlook a potentially beneficial option.
Tax-free student loan repayment assistance
Employer educational assistance programs, which aren’t new, can assist employees in paying off their student loans.
- The option to use educational assistance is available for payments made after March 27, 2020.
- If nothing had changed legislatively, the ability to use the programs to help with student loan repayment would continue for the next two years or so, until Dec. 31, 2025.
- However, under the so-called "One Big Beautiful Bill," enacted on July 4, 2025, Congress has made this option permanent, and it will be indexed to inflation beginning in 2026.
The good tax news is that in most cases, the assistance provided to employees by employers that meets specific requirements isn’t subject to tax.
Here’s what else you need to know about how educational assistance programs work.
Employer educational assistance vs. tuition reimbursement
Employer educational assistance programs allow employers to provide tax-free financial assistance to employees for certain education expenses.
Historically, these programs have been used to help employees pay for books, equipment, supplies, fees, tuition, and other education expenses.
However, due mainly to the pandemic, employer educational assistance can now be used to pay principal and interest on an employee's qualified education loans. According to the IRS, payments made directly to the lender and those made to the employee qualify.
- This employer-sponsored student loan repayment assistance is tax-free because the IRS doesn’t consider the assistance provided by the employer to be taxable income for the employee.
- However, the maximum annual exclusion for educational assistance an employer provides, per employee, is $5,250.
In a statement previously provided on the IRS website, Virginia Sen. Mark Warner encouraged employers to take full advantage of these programs as student loan payments resume for millions across the country.
"This benefit not only provides a pathway towards student debt relief for borrowers but also gives employers the ability to recruit and retain high-quality talent,” Warner stated.
How does tuition reimbursement work? It’s important to note that employer educational assistance and tuition reimbursement are different.
Educational assistance programs can cover a broader range of expenses, including tuition, fees, books, supplies, and student loan repayments. Tuition reimbursement programs, on the other hand, typically cover only tuition and related expenses for courses taken while employed.
Check with your employer if you’re unsure about education-related benefits they do or don’t offer.
There are also limitations and requirements for tax-free employer assistance in repaying student loans that you need to consider.
- For example, the IRS says amounts above the $5,250 per employee limit could be subject to tax as wages. (In that case, your employer should include in your wages (Form W-2, box 1) the amount that you must include in income.)
- Additionally, the educational assistance must be given under a formal, written educational assistance program sponsored by the employer.
- The assistance provided by the employer cannot favor highly compensated employees.
Bottom line
However, if you are looking for a tax-free way to help repay your student loan, it’s worth checking to see if your employer offers a formal educational assistance program.
And if you are an employer that doesn’t have such a plan, the IRS describes it as a “worthwhile fringe benefit” that can help your business attract and retain workers.
For more information, see IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits.
Related
-
Does My Car Insurance Cover Rental Cars?Is it safe to decline the extra coverage car rental companies offer you when booking? Here's what you need to know.
-
Outsmarting the AI Job Algorithm: Why Older Women Need a StrategyWhen you're job hunting, AI may undermine your best efforts. Here's how older women can throw a wrench in the algorithm.
-
New RMD Rules: Can You Pass This Retirement Distributions Tax Quiz?Quiz Take our RMD quiz to test your retirement tax knowledge. Learn about RMD rules, IRS deadlines, and tax penalties that could shrink your savings.
-
Ten Retirement Tax Plan Moves to Make Before December 31Retirement Taxes Proactively reviewing your health coverage, RMDs, and IRAs can lower retirement taxes in 2025 and 2026. Here’s how.
-
When to Hire a Tax Pro: The Age Most Americans Switch to a CPATax Tips Taxpayers may outsource their financial stress by a specific age. Find out when you should hire a tax preparer.
-
The Original Property Tax Hack: Avoiding The ‘Window Tax’Property Taxes Here’s how homeowners can challenge their home assessment and potentially reduce their property taxes — with a little lesson from history.
-
Social Security Tax Limit Rises Again: Who Pays More in 2026?Payroll Taxes The Social Security Administration has announced significant changes affecting millions as we approach a new year.
-
Three Critical Tax Changes Could Boost Your Paycheck in 2026Tax Tips The IRS predicts these tax breaks may change take-home pay in 2026. Will you get over $1,000 in tax savings?
-
The Rubber Duck Rule of Retirement Tax PlanningRetirement Taxes How can you identify gaps and hidden assumptions in your tax plan for retirement? The solution may be stranger than you think.
-
RMDs, Roth, and SS: Test Your Knowledge of Retirement Tax RulesQuiz Don't let the IRS catch you off guard. Take our quiz to reveal common retirement tax rules that could save (or cost) you thousands.
