A potential game changer for student loan debt: The Employer Participation in Repayment Act

The $900 billion Coronavirus Relief package is slated to bring much needed financial relief to Americans devastated by the COVID-19 pandemic. Within the relief package there is a transformative provision that will have far-reaching implications for the tens of millions of Americans burdened by student debt. It has the potential to slash the total student debt burden by one-third over the next decade.

The Employer Participation in Repayment Act

The Employer Participation in Repayment Act was initially passed as part of the CARES Act in March 2020 at the onset of the COVID-19 pandemic. It was extended until January 2026 as part of the second COVID-19 relief bill in December 2020.

History of The Employer Participation in Repayment Act

As CEO and Founder of FutureFuel.io, I wrote of the policy innovation crafted to crush student debt as far back as the spring of 2019. To address the second-largest category of household debt in America, Representatives Scott Peters (D-CA) and Rodney Davis (R-IL) led a bipartisan group of more than 100 members in introducing the Employer Participation in Repayment Act in early 2019.

Since then, Congressman Peters and Davis inspired more than 271 co-sponsors to back the bill.

On the other side of the Capitol, Senators Mark Warner (D-VA) and John Thune (R-SD) led a bipartisan group to introduce a companion bill (S460) to the Peters-Davis Bill to the Senate. Senator Warner and Thune inspired more than 64 co-sponsors across both sides of the aisle.

The role of the employer

So what exactly does this provision mean for the millions of American employees burdened by student debt? This provision allows employers to match payments made to pay off student debt by employees, tax-free.

In other words, just as employer contributions to tuition reimbursement and tuition assistance programs are exempt from payroll and income taxes, the same tax protections would be extended to contributions towards an employee’s student debt.

In fact, this provision allows the tax-exempt $5,250 that employers can contribute annually to tuition assistance, to be sent towards servicing the cost of the education employees already have.

Seventy one percent of employers currently have funds allocated to tuition reimbursement, however, more than ninety percent of employees who have access to them don’t utilize the funds. Employers can now access these funds in a shared piggy bank model across the spectrum of qualified education expenses both past and future.

With this legislation in place, employees and employers are both incentivized to help working Americans pay down their student loan debt, so they can focus their efforts towards long-term financial goals and wellness.

This bill could not have come at a better time for borrowers and employees facing repayment. The passage of this provision unlocks $143 billion to $206 billion of eligible (allocated but previously unused) annual funds to pay down student debt.

Why it’s needed

In the early 1990s, more than 95% of households were completely unaffected by student debt – today that number sits closer to just 60%. The dramatic change we’ve seen over the past 30 years has had far-reaching impacts on our society and economy as a whole.

For context, no other debt category (mortgages, credit cards, auto loans, etc.) has grown as quickly over the same time frame in the number of affected households.

A game changer for borrowers

For the average student loan borrower, employer repayment is equivalent to making more than double the monthly payment on their student loans. Taking full advantage of the funds will save the average borrower more than $30,000 and get them out of debt twice as fast.

Laurel Taylor is the Founder and CEO of FutureFuel.io.  Laurel’s vision has been steadfast since first founding the firm in 2016. Laurel envisioned a new normal across the workplace, one that would offer benefits that address student debt, just like tuition assistance to retirement savings, serving the full spectrum of employees financial health and wellness.  Laurel’s own personal experience struggling with student debt continues to serve as driving force behind her relentless pursuit to solve this problem, in partnership with employers, policy makers, financial institutions and universities.