- Federal student loan payments and interest
have been waived until September, but did you also know
that your employer's loan repayment assistance contributions
have also been changed in the CARES Act?
Here's what the CARES Act changed
for your employer's repayment of your student loans
and how that impacts your taxable income.
(light music)
Hey guys, welcome back to The College Investor,
Investing and Personal Finance for Millennials.
So the CARES Act has obviously a lot of different provisions
and changes to help us during this difficult time,
and part of that included
the loan repayment assistance programs
and how that changes and impacts your student loan debt.
So first, what are loan repayment assistant programs?
These types of programs helps student loan borrowers
repay their debt.
So employers can participate in these types of programs
to incentivize prospective employees
and retain current employees.
So if your employer participates in these types
of assistant programs to help you repay your student loans,
oftentimes there's some terms surrounding that agreement.
If they agree to pay your loans,
then you might have to have a certain numbers years
of service working for that employer
because what they wanna make sure is that they get benefit
out of paying off your student loans and making sure
that you're not just going to up and leave that employer
after they pay all of your student loans back.
In fact, if you leave early
and kinda bounce out of that contract,
you may be on the hook to repay that loan assistance.
This was what was in place
prior to the CARES Act going into effect.
In fact, that money that your employer paid,
either directly to you as a reimbursement
for your student loans, or directly to your lender,
that money was treated as taxable income.
So for a simple example here,
if you made $50,000 in a year
and your employer paid $10,000 towards your student loan,
you're actually going to have a taxable income of $60,000.
Once the CARES Act went into effect,
there were a couple provisions that were put into place,
so some language was changed and this is what it looks like.
So it says right here in Section 2206
under the Section B, "In the case of payments
"made before January 1st, 2021, the payment by an employer,
"whether paid to the employee or to a lender
"of principal or interest on any qualified education loan
"incurred by the employee for education of the employee,"
and they did a little amendment here in Section b,
the Conforming Amendment, they inserted the following,
"Or for which an exclusion is allowable under Section 127
"to the taxpayer by reason of the payment
"by the taxpayer's employer of any indebtedness
"on a qualified education loan of the taxpayer."
So what this means in simple language is that any
of that money that is paid towards your student loan
from your employer is now going to be tax-free,
and this goes for the rest of 2020.
No matter if your employer actually makes those payments
directly to you in a form of reimbursement
or directly to your lender, it will be considered tax-free.
Now, keep in mind that this only applies
to that first $5,250 per year per employee as of right now.
And as an employee, you don't need to do anything
to make this change happen, your employer doesn't need
to make any changes, this is just automatic.
And we're not really quite sure how this is all going
to play out with student loan payments
and that interest waived until September,
plus the tax-free provision
for any employer loan repayment assistance,
we're just not sure how this is all going to shake out.
Here's the thing, if you're still employed
or receiving a regular paycheck, and you have the means
to pay down your student loan debt, do so.
Every little bit counts,
especially now when there's no interest accruing,
you could really make some headway on your student loan debt
if you have the means to do so.
Now for more information on student loan debt and more,
be sure to visit thecollegeinvestor.com.