How to start a student loan repayment program

Written by: Chase Charaba
Published on October 6, 2022.

In August 2022, the Biden Administration announced a new federal student debt relief plan1 that includes up to $20,000 in student loan forgiveness. While this initiative will help dent the overall debt crisis, for many job seekers and employees, it only scratches the surface of their overall debt.

As an employer, you can leverage this increasing need for assistance in your recruitment efforts.

With the number of job openings at its highest level2 in U.S. history amid a nationwide labor shortage, employers are looking for ways to get an edge over their competitors. Many organizations are exploring unique employee benefits programs and increasing compensation packages to attract and retain top talent.

Offering your employees student loan repayment assistance benefits can be an attractive way to recruit job seekers. Student loan debt is rising, and recent federal laws have allowed organizations to establish employer student loan repayment programs easily.

This article will explain how to start a student loan repayment program and ensure that it's successful.

Want an easy way to manage your student loan repayment assistance program? Learn more about offering employee stipends to your workforce

Can an employer repay student loans?

Employers have always been able to repay student loans as a taxable wage for employees, like giving a bonus. However, the Consolidated Appropriations Act of 2020 expanded IRS code Section 1273 to allow employers to repay student loans tax-free through 2025.

Organizations can pay up to $5,250 per employee per year tax-free for student loan repayment and tuition assistance. If you offer more than that amount, the additional allowance is taxable income and must be reported on employees' W-2s.

It's important to note that the $5,250 tax-free limit is for all qualifying education assistance programs combined, not just repayment.

While student loan repayment programs are uncommon, they are steadily growing in popularity. According to the Society for Human Resource Management4 (SHRM), the percentage of employers providing student loan repayment assistance doubled from 4% to 8% in 2020.

Why offer student loan repayment benefits?

Student loan repayment is a significant concern among college students and graduates. According to Education Data5, the average student loan debt in the U.S. is $37,113.

A significant reason for offering a repayment plan is to attract younger workers such as Millennials and Gen Zers, as they are the generations most likely to have student debt. Education Data6 found that Millennials make up the largest percentage of federal loan borrowers, with Gen Z coming in second.

These younger workers, especially Gen Z, don't value the same employee benefits as other generations. They're also less likely to contribute to a 401(k) plan because of their student loan debt. This makes a loan repayment program enticing to these workers.

According to our 2022 Employee Benefits Survey Report, 26% of Gen Z employees surveyed rated student loan repayment assistance as "very" or "extremely" important, while 27% of Millennials rated the benefit the same. Offering student loan assistance can help you attract these younger employees.

Providing student loan repayments is a great way to attract new talent and satisfy your current employees. Employees who feel taken care of and appreciated are more likely to stay at your organization instead of looking for a new job, helping you save money on employee acquisition.

Employees who aren't stressed about paying off their student loans are also more likely to be productive. According to PwC's eighth annual Employee Financial Wellness Survey7, one-third of employees are distracted by finances at work. Helping to ease employees' financial worries will allow them to focus on their work.

And there's no better time to start student loan repayment plans. Following the COVID-19 pandemic, the federal government paused student loan payments. However, this temporary loan relief isn't permanent. Federal student loan repayments will resume for millions of Americans. Establishing a repayment plan for your employees ensures that you'll be ready to meet their needs in the future.

Student loan repayment vs. tuition assistance

While student loan repayment programs are new employee benefits, other forms of education benefits have been around for decades.

Tuition assistance is when an employer provides funds or reimbursement for current education expenses such as college tuition, textbooks, supplies, and equipment. This requires your employees to be currently enrolled in classes or programs.

Meanwhile, student loan repayment benefits help your employees with their existing student loan debt.

Which student loans qualify for repayment?

Not all loans qualify for tax-free repayment under IRS guidelines. Only eligible loans can be repaid tax-free. To qualify for your employee student loan payment program, the loan must meet specific requirements listed in IRS Publication 9708.

To qualify for tax-free repayment, student loans must be:

  • Taken for the employee, their spouse, or a dependent
  • Paid or incurred within a reasonable period
  • For education provided during a standard academic year for a student enrolled at least half-time in a program that leads to a degree or certificate
  • The loan also can't be from a relative or a qualified employer plan.

How to offer student loan repayments to your employees

Every student loan repayment program is unique. While these programs will look different in every organization, here are a few tips to ensure that your program is successful.

Determine your monthly or annual allowance for student loan repayments

First, you'll need to determine how much you're willing to spend on employee student loan assistance. While the IRS allows you to provide up to $5,250 tax-free per employee per year, you don't have to offer that amount to see the program's benefits.

According to Education Data, the average student loan9 monthly payment is $460, or $5,520 each year. Repaying a significant portion of these monthly payments is enough to impact your employees positively.

You can start by offering a $100 or $200 monthly payment and increase the amount as you can. You could also offer different allowance amounts based on employee tenures, such as offering less for first-year employees and more to those who have been with your organization for a few years. This creates an incentive for employees to stay at your organization, reducing employee turnover and saving you on acquisition costs for new talent.

You can also offer more than the yearly cap. Any amounts over $5,250 per employee will be taxed, and you must report this excess as wages on your employees' W-2s. Your employees will be responsible for paying any income taxes on these excess payments.

Let's look at some examples of student loan assistance programs.

According to SHRM, McLaren Flint Hospital provides $200 each month during an employee's first year in the program. In their second year, the amount increases to $300, while employees top out at $450 per month in their third year. The hospital caps total repayment at $15,000 per employee.

Other organizations, such as Carvana10, offer $1,000 per year, while Google provides $2,500 per year per employee for student debt repayment.

Decide who is eligible for the benefit

Once you've decided on a monthly allowance, you'll have to determine who is eligible for the repayment program. Will you offer the benefit to all of your employees, only full-time employees, or to certain employees based on tenure or position?

There aren't any rules surrounding employee class creation with student loan repayment benefits. But, it is a good practice only to use job-based criteria to avoid discrimination against certain employees.

Follow IRS guidelines if you want your program to be tax-free

If you want to offer a tax-free repayment program, you'll need to follow the IRS guidelines in Publication 15-B11 for educational assistance programs.

To repay loans tax-free, your program must:

  • Not favor highly compensated employees (an employee who receives more than $130,000 in the previous tax year)
  • Not provide more than 5% of its benefits for the year to shareholders or owners (or their spouses or dependents). The IRS defines a shareholder or owner as anyone who owns more than 5% of the organization's stock, capital, or profits interest. You can ignore this rule only if the employee wasn't also in the top 20% of employees by pay
  • Not allow employees to receive cash instead
  • Not allow employees to receive a different taxable benefit in place of education assistance
  • Give reasonable notice of the program to all eligible employees

You should also have a written benefits plan in place.


Student loan repayment plans are a great addition to your employee benefits package. Whether you choose to offer them as a taxable or tax-free benefit, they'll help you attract and retain college graduates and improve overall productivity at your organization. When you make a difference in your employees' lives, they'll be more likely to stay at your organization in the long run.

But, education benefits aren't the only benefits you should offer your employees. Health and wellness benefits are often the most attractive perks for job candidates.

If you're interested in offering your employees flexible benefits such as health reimbursement arrangements (HRAs) or employee stipends, PeopleKeep can help! Our HRA and employee stipend administration software makes setting up and managing benefits for expenses like health, wellness, and remote work easy.

With our custom perks feature, you can easily create your own student loan repayment program and custom allowances in just minutes each month.

Schedule a call with a personalized benefits advisor today to find out how you can create a custom education benefit through our WorkPerks software

This blog article was originally published on May 25, 2022. It was last updated on October 6, 2022.












Originally published on October 6, 2022. Last updated October 6, 2022.


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