Employers offer their employees student loan repayment assistance as a recruiting and retention tool. With a student loan repayment assistance program, or LRAP, the employer makes monthly student loan payments to the employee’s lender, helping the employee to repay their student loans quicker.
Characteristics of Student Loan Repayment Assistance Programs
A typical employer LRAP will involve monthly student loan payments of $100 a month with a cumulative limit of $10,000. Some employer LRAPs do not have a specific cumulative limit, continuing until the student loan debt is paid off in full.
Most employer LRAPs are limited to student loans, not parent loans. Some are limited to federal student loans, while most will repay both federal and private student loans.
The employer LRAP is provided as an employee benefit only for as long as the employee continues to work for the employer. Most employer LRAPs are limited to full-time employees.
Employer LRAPs are more common in STEM and Healthcare, where there is more competition for talented employees.
LRAPs are Currently Taxable
Student loan repayment assistance is considered to be taxable income to the employee under current law.
Some employers are waiting until Congress provides tax-free status to student loan repayment assistance before offering it to their employees.
Bipartisan legislation, the Employer Participation in Repayment Act of 2019 (S. 460), would amend the Internal Revenue Code of 1986 at 26 USC 127 to expand the $5,250 exclusion from income for employer-paid educational assistance to include payments of qualified education loans by an employer.
Financial Impact of Student Loan Repayment Assistance
Consider a borrower with $30,000 in student loan debt with a 5% interest rate and a 10-year level repayment term.
Without a LRAP, the borrower would make 120 payments of $318.20 a month, for a total of $38,183.59 in payments, of which $8,183.59 would be interest. They would qualify for the student loan interest deduction each year, reducing their income tax liability by $1,964.05. The net payments by the borrower would be $36,219.54.
If the borrower receives a taxable employer LRAP consisting of $100 a month, the student loan debt would be paid off after 7 years, 2 months (86 payments). The borrower’s total loan payments would be $27,215.63, of which $5,715.63 would be interest. The borrower would also receive $8,500 in LRAP payments from their employer. The student loan interest deduction would yield $1,371.76 in tax savings, but the LRAP would increase the total tax bill by $2,040.00. The net payments by the borrower would be $27,883.87, saving the borrower $8,335.67 on their student loans. The borrower also cuts almost three years off of their repayment term.
If Congress were to make employer-paid LRAPs tax-free, the borrower would save an additional $2,040.00 on their taxes, reducing the net payments to $25,843.87 and increasing the total savings to $10,375.67.
Growth in Employer LRAPs
According to the 2019 Employee Benefits Survey conducted by the Society for Human Resource Management (SHRM), 8% of employers provided student loan repayment assistance in 2019, up from 4% in 2018 and 3% in 2015.
SHRM expects a third (32%) of all U.S. employers to offer student loan repayment assistance programs by 2021.
The federal government has provided a LRAP for federal government employees through the Office of Personnel Management (OPM) since the early 1990s. The program provides up to $10,000 a year and $60,000 in aggregate for repayment of federal education loans in exchange for a commitment to work for the government for at least three years.
The program is available to employees of government agencies, members of the U.S. Armed Forces and Congressional aides, but not members of Congress and political appointees. The program is especially popular among employees of the Department of Defense, Department of Justice, Department of State, SEC, VA and HHS.
The U.S. Department of Justice funds a similar LRAP program for state prosecutors and public defenders, called the John R. Justice Student Loan Repayment Program.
The American Bar Association (ABA) has compiled a guide to LRAP programs for law students who will pursue careers in public interest law.
Members of the U.S. Armed Forces may receive up to $65,000 in federal loan cancellation instead of Montgomery GI Bill benefits. They must score at least 50 on the Armed Services Vocational Aptitude Battery (ASVAB) to qualify.
Facilitators of Employer Student Loan Repayment Assistance Programs
A dozen companies help employers set up student loan repayment assistance programs.
- BenefitEd (Nelnet)
- EdAssist (Bright Horizons Family Solutions)
- Gradifi (E*Trade)
- LRAP Association
- SoFi at Work
- Vault (formerly Student Loan Genius)
Some of these companies, such as Gradvisor, help employers make 529 plan contributions for employees who have already paid off their student loans.