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Senators Take Aim at Student Loan Debt Relief

Student loan debt relief continues to receive significant attention on Capitol Hill, as bipartisan legislation introduced Feb. 13 in the Senate would allow employers to provide tax-free student loan assistance for their employees.   

Senate Republican Whip John Thune (R-SD), along with Sen. Mark Warner (D-VA) and 17 other cosponsors, introduced the Employer Participation in Repayment Act to permit employers to contribute up to $5,250 tax-free to their employees’ student loans. 

The legislation builds on the existing employer-provided educational assistance program under Section 127 of the Internal Revenue Code. Under current law, the program provides assistance for workers who are seeking additional education, but it does not extend to individuals who have already incurred student loan debt during their undergraduate or graduate studies.  

“By making employer student loan repayments tax-exempt, employers will have a new tool to recruit and retain a talented workforce while also helping working Americans manage their financial future,” Warner stated in a news release

The legislation will be referred to the Senate Finance Committee, on which both Thune and Warner serve. Companion legislation has also been introduced in the House of Representatives by Reps. Rodney Davis (R-IL) and Scott Peters (D-CA).

Momentum for Action

Meanwhile, employers and policymakers increasingly are looking to take action to address the growing burden of student loan debt and its inadvertent drag on overall financial wellness. 

The senators point to reports showing that one in four Americans have student loans, and that student debt in the U.S. reached $1.5 trillion in 2018. They note that student debt is a significant financial burden that not only influences the way workers save and spend, but also has a stifling effect on the economy.

Last year’s private letter ruling by the IRS allowing a 401(k) plan to be amended to include a student loan benefit programhas also sparked greater attention to the problem among employers and policymakers alike. 

Sen. Ron Wyden (D-OR), ranking member of the Senate Finance Committee, late last year introduced legislation that would permit 401(k), 403(b), and SIMPLE retirement plans to make matching contributions to workers as if their student loan payments were salary reduction contributions. The bill also provides that a 401(k) plan which provides these matching contributions may continue to qualify as a safe harbor plan for nondiscrimination testing purposes.

Additionally, Sens. Rob Portman (R-OH) and Ben Cardin (D-MD) also introduced last year comprehensive retirement security legislation that includes a similar provision treating student loan payments as elective deferrals for purposes of matching contributions. 

Neither of these bills have been reintroduced in the 116th Congress, but it is anticipated the senators will do so in the coming weeks.