CARES Act Ceases Tax on Student Loan Contribution Programs

Over the past couple of weeks, the CARES Act has been top of mind for investors, small business owners, and American citizens alike. In addition to the opportunity to halt RMDs, individual stimulus checks, and forgivable loans to small businesses, the CARES Act also aims to assist workers who carry student loan debt.

In response to the coronavirus pandemic, the Trump Administration has authorized a hold on interest rates and payments for federal educational loans.

Additionally, employers will have the opportunity to make tax-free contributions to employees’ student loans.

Greg Poulin, CEO of Goodly – a start-up helping employers implement a student loan repayment system – told Jim Cramer on an episode of Mad Money, “one really critical provision within the CARES Act is that it allows employers to make contributions toward their employees’ student loans tax-free for the first time.”

Similarly to 401(k) match programs, employers have been able to offer contributions toward employees' student loans, however, the contribution was taxable. The income tax was viewed as a barrier to many employers from implementing the system. Hence, only 8% of employers offered a student loan matching program.

Employers now have the opportunity to contribute up to $5,250 per year, untaxed, toward the principal of employees’ student loan debt.

When vetting investment options, one of the most important attributes of companies that will withstand economic turmoil now and in the future, is ethical business practice. The companies that take care of their employees will be the companies that have the best opportunity to thrive long-term.

Today, student loan debt exceeds $1.4 trillion. That’s probably why nearly 49% of millennials prefer student loan benefits over 401(k) contributions (source: goodlyapp.com).

To the business owners who want to differential themselves: you may consider a student loan repayment program. As mentioned, the barrier to implementation has been lifted by the CARES Act. Employers will no longer be taxed on employee student loan contributions.  

As a fellow small business, we understand the importance of attracting and retaining top-notch talent. Assisting employees with student debt is an opportunity to differentiate yourself and retain happy, productive workers.

To workers who carry student loan debt: if your employer offers a similar retirement matching program, now may be a great time to ask about a student loan repayment program.

The first step toward addressing financial independence is paying off your debt. At Denver Wealth Management, we recommend paying off all of your debt before investing for retirement. We also recommend taking full advantage of the employer match when offered – that’s free money.

If you have any questions, please don’t hesitate to call our office at (303) 261-8015.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Greg Poulin and Goodly are not affiliated with LPL Financial and Denver Wealth Management. You are under no obligation to use their services.

All information is believed to be from reliable sources; however, Denver Wealth Management and LPL Financial make no representation to its completeness or accuracy.

The content provided herein is based on our interpretation of the CARES Act and is not intended to be legal advice or provide a tax opinion. This document is a summary only and not meant to represent all provisions within the CARES Act.

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