Already Offering Educational Assistance Benefits? Here’s How to Amend Your Section 127 Plan to Unlock Tax-Incentivized Student Loan Repayment

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Already Offering Educational Assistance Benefits? Here’s How to Amend Your Section 127 Plan to Unlock Tax-Incentivized Student Loan Repayment

For more than forty years, Section 127 of the Internal Revenue Code (IRC) has allowed employers to make tax-free contributions to employees’ tuition, fees, and books. But it wasn’t until a short-term amendment was passed in 2020 that Section 127 Plans — also known as Educational Assistance Programs (EAPs) — could cover student loan repayment, and it wasn’t until the Consolidated Appropriations Act (CAA) set forth a further amendment that employers could unlock tax-free student loan repayment benefits through the end of 2025.

There’s no doubt that these changes will spur many employers to offer an educational assistance program benefit for the first time. But if your organization is in the eight percent of employers that already had a Section 127 Plan in place before this new legislation, don’t pass up on the chance to expand your EAP. 

With 43.2 million borrowers each carrying an average of $39,351, tax-incentivized student loan repayment assistance is a first-of-its-kind opportunity for employers to ease the strain of one of the most universal financial burdens facing today’s workforce — and luckily, updating your existing Section 127 Plan to offer this benefit is simple. Here’s how:

Revisit regulations and restrictions. 

You’re likely already familiar with the fine print of Section 127 Plans, but it’s important to note that the same rules appy to student loan repayment benefits, including policies on discrimination and allowing employees to choose between benefits and other compensation.

Know your limits. 

Tax incentives are capped at a maximum of $5,250 total in eligible education expenses per employee per year. If you provide an employee with $3,000 in student loan repayment assistance and $5,000 in tuition assistance in a single tax year, only $5,250 of the $8,000 total will be tax-free.

Set your tax-free student loan support plan in motion.  

Your written Section 127 Plan documentation — a requirement of IRC stipulations — must be formally amended to introduce student loan repayment. But maximizing your EAP’s return on investment will take more than just paperwork — and that’s where FutureFuel.io comes in. 

Our industry-leading platform automates employers’ tax-free student loan contributions while accelerating employees’ debt paydown through tools that use spare change and cash back to chip away at debt, find personalized loan refinancing and repayment plans, unlock financial wellness educational resources, and more. 

If you’re ready to learn more about leveraging FutureFuel.io to add tax-free student loan benefits to your Educational Assistance Program, schedule a demo today.