By John Hartung
Aspire Resources Inc.
(January 28, 2021) – Tuition assistance benefits offered by employers have helped employees who further their education without additional income tax liability for many years. Now, a new benefit can be offered to employees with existing student loan debt, also without incurring additional federal income tax liability for either party.
Thanks to recent action by Congress, employers may annually provide up to $5,250 in contributions, which reduce student loan debt without federal tax consequences, for each employee. The extension is currently in place through Dec. 31, 2025. For employees, these programs and the tax benefits now available can decrease their loan indebtedness, shorten the time to fully repay their loan debt and significantly reduce the interest they must pay.
Iowa Student Loan’s wholly owned subsidiary, Aspire Resources Inc., works with employers committed to providing student loan repayment benefits to their employees.
We are excited to see the extension of the tax benefit to employees who, prior to tax year 2020 were responsible for income tax on any student loan payments made by their employer. The result is that employer contributions against an employee’s student loan debt is an even greater benefit to the employee.
How Employer Payments Help Reduce Debt
Here’s an example of how these employer contributions toward student loans can be a great benefit to employees with existing student loan debt.
Kim borrowed $30,000 in student loans at 6.00% interest. After graduation, she makes the first two payments of the 10-year repayment term. Kim then enrolls in a student loan benefits program through her new employer, where she continues to work throughout the life of her loans. Beginning with the third payment until her loans are repaid, her employer makes $100 monthly contributions in addition to the payments Kim makes each month.
Without employer contributions:
Interest paid: $9,967.20
Total repayment amount: $39,967.20
Time to repayment: 10 years (120 months)
With $100 monthly employer contributions to principal in addition to Kim’s payments:
Interest paid: $7,026.01
Total employer payments: $8,400.00
Kim’s total repayment amount: $28,626.01
Time to repayment: 7 years, 2 months
With the employer assistance and the federal income tax benefit added to her own payments, Kim saves $11,341.19 in costs and is able to fully repay her loan almost three years sooner. (This information does not include individual tax calculations, which vary by individual.)
How to Get Started
If you’re an employer and you would like to start offering student loan repayment benefits to your employees, visit www.AspireResourcesInc.com to get started. You may also contact Luke Williams, Aspire business development, directly at (515) 273-7577.
If you are an employee with student loan debt and would like your employer to begin offering this type of benefit, reach out to your human resources or benefits staff to encourage them to explore the potential at www.AspireResourcesInc.com or ask them to call Luke Williams.
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