U.S. Reps. Steve Stivers (R-OH) and Terri Sewell (D-AL) recently introduced legislation to allow employer student loan repayment programs to be considered a non-taxable fringe benefit, reducing the tax burden on borrowers.
The bill, the Student Loan Debt Relief Act, would raise the cap on tax free educational assistance to $10,000 and doubles the maximum deduction of student loan interest from $2,500 to $5,000. It also raises the income ceiling to allow more young professionals to benefit from these programs.
“Students and recent graduates often face difficult financial hardship paying for their student loans with entry level jobs. There is no doubt that student loan debt can be a major obstacle in building a solid financial future,” Stivers said. “While this is just one step to addressing the cost of higher education, I am proud to support a stronger student loan repayment program to relieve the burden on the next generation.”
Currently, employers that provide student loan assistance and repayment benefits for their employees are then able to write off those costs as part of doing business. The Internal Revenue Service, however, classifies these programs as taxable income on the employees who are then taxed on that benefit as additional income.
This bill eliminates the classification to allow employees to receive this benefit without the burden of additional taxes on their paychecks.
“We cannot allow student loan debt to keep the American dream out of reach for our youngest generation,” Sewell said. “Recent graduates joining the workforce face many challenges, and student debt can be one of the most difficult. The Student Loan Debt Relief Act takes an important step forward by giving young people a better opportunity to work towards financial security.”
Current law sets an income ceiling of $80,000 for individual filers and $160,000 for couples filing jointly to be eligible for interest deduction. This bill will raise these amounts to $150,000 and $250,000, respectively, to allow more young professionals to qualify for this deduction.