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The Definitive Guide to Employer Student Loan Repayment Benefits

Learn the ins-and-outs of how both employers and new hires can take advantage of a novel student loan repayment benefit as a tax-free write-off through 2025.

by Team Paidly
Jun 27, 2022 11 min read
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It seems that college graduates in 2022 will be facing a “good news, bad news” conundrum.

Bad news: student debt hits an all-time high

First the bad news. It looks like the amount of outstanding student loans in the United States has increased every quarter since the first three months of 2006 through the first three months of this year. According to, the total amount of educational debt that American students owed in March 2022 was more than $1.76 trillion – reaching an all-time high in the U.S. – compared to $480.9 billion in the same time period back in 2006. That’s an increase of more than 366% nationwide in 16 years, and it breaks down to about $28,950 owed per borrower on average, according to Forbes.

Good news: more college grads will be hired this year than 2021

Now for the good news. It seems that job prospects for new graduates this year are better than they’ve been in recent years. The National Association of Colleges and Employers’ (NACE) Job Outlook 2022 Spring Update found that surveyed employers say they plan to hire 31.6% more new college graduates this year than in 2021.

The NACE research further found that a key driver of this increased hiring trend was demand across all industries represented in the latest survey due to the current labor shortage. This across-the-board need for newly minted graduates was further bolstered by a specific NACE finding that 1-in-6 survey participants said they plan to increase their number of new hires this year by 100% or more compared to last year.

Additionally, 56% of respondents to the NACE’s latest survey stated that they plan to increase their college hire numbers, while another 41% will maintain their hiring levels from last year. Only about 3% of those surveyed plan on decreasing their number of college hires in 2022. It seems that this year’s graduating class has a lot to look forward to!

2022 college grads can be picky

It’s no secret that there’s a labor shortage, and because of the high demand for qualified talent – many candidates are turning the interviewing process on its head, as the candidates are actually interviewing prospective employers since many new grads are getting multiple job offers at a breathtaking pace.

Because of this increase in employer demand for capable personnel, job seekers are bringing a laundry list of benefits and perks they’re looking for before they sign on the dotted line with any employer. In a recent article posted on the website for the Society of Human Resource Management (SHRM), many new graduates have new-found leverage in the hiring dynamic, and they are calling the shots in many respects.

Top benefits 2022 college graduates want

According to SHRM, new graduates expect to receive traditional benefits such as paid time off, 401(k) employer match, as well as health and dental insurance. They also expressed a strong desire for remote-work options at their discretion as well as flexible scheduling accommodations. From its research SHRM stated that those were the top benefits that new college grads specifically called out. But they also expressed a keen interest to receive in-office perks such as workout facilities, access to activities such as pool tables and ping pong, catered lunches, free beverages, and coffee bars.

Additionally, while not usually categorized as a benefit, about 40% of college seniors expect to be promoted within the first 12 months of being hired. For many employers it’s not feasible to move new hires through an accelerated promotion pipeline based on the size of the organization, structure of the team that the candidate joins, macroeconomic realities, nature of the job - just to name a few potentially limiting variables. However, SHRM suggests that hiring managers can instead focus on the company’s mentorship programs, learning opportunities, or training initiatives as a way to highlight the organization’s commitment to employee development.

It’s worth noting that recent college seniors also wanted the ability to connect with other employees both socially and within the workplace, which is understandable as most grads spent at least a third of their college career in some type of isolation resulting from the COVID-19 lockdown that began in the first quarter of 2020.

Interestingly, despite having an average of more than $28,000 in student loans, it seems the idea of an Employer Student Loan Repayment (ESLR) benefit is not even on the job-hunting radar of prospective employees. That means innovative employers and businesses willing to embrace such a program could be at a distinct hiring advantage when competing for new talent, or seeking to retain current talent, by offering them a novel perk that they need, but don’t necessarily know is available.

Definitive guide to Employer Student Loan Repayment

In a separate write-up on its website, SHRM stated that employer-provided education assistance plays an important role in workforce development and "has long championed policies that allow employers to offer education assistance programs relevant to the modern workforce," said James Redstone, director of public policy at SHRM.

However, employer-provided educational assistance is much more than paying for part-time college credit hours or reimbursing workers for the cost of textbooks. One of the best educational assistance options available to businesses – which is woefully underutilized, since only 8% of employers reportedly offer this benefit – is the Employer Student Loan Repayment (ESLR) perk.

An ESLR benefit directly meets the need and helps alleviate a lot of the pressure new graduates face as they enter the job field. The specific perquisite is where employers provide nontaxable funds to pay down student loan debt for their workers. The additional contribution from the employer not only lowers the worker’s total amount of debt owed, it also reduces the total amount of interest expense for the life of the loan, and reduces the duration of loan through the accelerated payment schedule.

For all these reasons, it stands to reason why an ESLR benefit is an attractive option to offer to high-potential employee prospects by making recruitment and retention easier, while also boosting employee engagement and productivity once hired.

Why employers should address student loan debt

Not only is an ESLR benefit a differentiator among competing businesses within a tight labor market, it is also a powerful signal to current and prospective employees that their managers care about their financial challenges, future wellbeing, and overall mental health. These data from Harvard Business Review provide a compelling picture as to why employers should consider providing an ESLR benefit.

  • 80% of surveyed employers reported that an employee’s personal financial issues affect job performance.
  • 54% of millennials are concerned about their ability to repay student loan debt.
  • 80% of college-educated millennials carry more than one source of student debt.
  • 86% of young workers surveyed by American Student Assistance said they would commit to five years with an employer that helped them pay off student loans.

Those are compelling facts that any employer should consider as they examine their portfolio of employee benefits.

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Explanation of how ESLR benefits came to be

During the COVID-19 pandemic, the government enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which had a temporary provision allowing student loan repayment as an alternative to typical paid educational assistance for current matriculated employees.

Basically, the CARES Act enabled employers to help pay down student loans of employees for past educational expenses on a tax-free basis up to $5,250 each calendar year, if provided through a qualified educational assistance program, as outlined under Section 127 of the law.

This breakthrough revision provides a significant tax advantage to the workforce cohort that is still repaying eligible student loans, as well as a meaningful tax incentive to the employer that doubles as a dual-edged recruitment and retention tool.

The CARES Act added a greater degree of flexibility to educational assistance benefits in general, by including a wider cross-section of the workforce with the addition of student loan repayments, made before Jan. 1, 2021, as tax-free “educational assistance” to employees if the student debt fits within the guidelines specified in Section 127 of the law. This novel piece of legislation was signed into law in March 2020, and it also provides payment flexibility for the employer to directly pay the lender or employee, and that payment can comprise either loan interest, principle, or both.

The temporary nature of the CARES Act was extended through the end of 2025 under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which became law on December 27, 2020. This extension of the CARES Act is another reason why employers need to act now and take advantage of this tax-saving tool and meaningful employee benefit.

Necessary requirements for a compliant ESLR benefit

Benefit administrators quoted in media articles widely agree that adding a student loan repayment benefit to an employer’s existing qualified educational assistance program is a relatively straightforward process. However, it can be daunting for businesses that don’t currently have a qualified educational assistance program already set up. That type of program must be established first before any type of employer student loan repayment (ESLR) benefit can take effect.

For an ESLR benefit that complies with Section 127 of the law, enabling both employees and employers to take advantage of the tax-free advantages, there are several specific stipulations that must be addressed, that include:

  • Documented Plan. A qualified educational assistance program must be established under a separate written plan by the employer, but it does not need to be complex or exhaustive.

  • Employees Only. Qualified educational assistance programs can only benefit actual employees. Under Section 127, the term “employees” includes: retired, disabled, or laid-off employees; present employees on leave; and self-employed individuals. But it does not extend to dependents or spouses of employees.

  • Proof of Use. Employees who receive benefits under an educational assistance program usually must provide substantiation or “proof” that the employer’s payments or reimbursements are in fact being used for educational assistance.

  • Nondiscriminatory. An ESLR benefit must not discriminate in favor of officers, shareholders, self-employed individuals, or highly compensated employees. It must be available to all eligible employees. However, eligibility for benefits under the program can be limited to a certain classification of workers such as full-time versus student interns. But any limitation cannot disproportionately favor management and “higher ups.”

  • Educational Assistance Only. Qualified educational assistance programs can only provide benefits that meet the definition of “educational assistance.” That means certain expenses are specifically excluded from this definition such as meals, travel, recreational activities, lodging, or supplies other than textbooks.

  • ESLR Benefits are Non-Fungible. This basically means that employees cannot be provided an opportunity to swap between the educational assistance and another benefit that would be included in their income. For instance, an employer cannot offer educational assistance through a Section 125 cafeteria plan or allow employees to elect educational assistance instead of a taxable bonus.

  • ESLR Benefit Limitations. To classify as a qualified educational assistance program under Section 127, there are certain limitations around providing benefits to owners or shareholders of more than 5% of the company.

  • Reasonable Notice. Under Section 127 all eligible employees are given reasonable notice of the terms and availability of the program – and that includes any future changes or amendments, which must be communicated broadly and in a timely manner as well.

Be sure to read our post on How to start a student loan repayment benefit to get a great understanding how implement this benefit in your organization today.

Tax requirements for an ESLR benefit

It’s worth noting that under a qualified Section 127 ESLR plan, employers do not need to apply or qualify with the IRS to provide the benefit - which is a nice surprise for most employers to hear! However, employers need to stay under the annualized benefit cap of $5,250 per employee otherwise the overage is deemed as taxable income under the IRS tax code.

From a payroll perspective, the non-taxable aspect of the ESLR benefit means that those funds do not incur Social Security or Medicare matching amounts by the employer, and are not subject to payroll withholding. They do need to be tracked however to ensure appropriate deductibility as a business expense for the employer, compliance with generally accepted accounting practices, and assurance that the peak benefit cap isn’t exceeded.

Next Steps

If you’re interested in finding out more about ESLR benefits or actually rolling out this benefit to your employees, the experts at can help! Just click this LINK and answer a few brief questions about your business and employee benefits, and one of Paidly’s experienced benefit consultants will reach out to help develop the perfect ESLR plan for you and your employees. Don’t delay, the sooner you reach out the sooner your employees will become more engaged, more productive, and less stressed!

Team Paidly

Team Paidly

Paidly is a Student Loan Repayment Benefit platform. Leveraging over a decade and a half of Fintech, student loan origination, and refinancing experience. Paidly specializes in creating custom student loan repayment benefit plans, designed specifically to allow employers to pay directly towards their employees' student loans. Paidly's system requires no integration and enhances talent attraction and employee retention.

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The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Paidly shall have no liability for the information provided. While care has been taken to produce this document, Paidly does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.

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