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Student Loan Repayment Assistance Programs

Written by Mark Kantrowitz | Updated March 11, 2022

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.

Other LRAPs

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.

Education awards for volunteering through AmeriCorps and Peace Corps may be used to pay down federal student loan debt. 

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Facilitators of Employer Student Loan Repayment Assistance Programs

A dozen companies help employers set up student loan repayment assistance programs.

Some of these companies, such as Gradvisor, help employers make 529 plan contributions for employees who have already paid off their student loans.

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About the author

Mark Kantrowitz is a nationally-recognized expert on student financial aid, scholarships and student loans. His mission is to deliver practical information, advice and tools to students and their families so they can make informed decisions about planning and paying for college. Mark writes extensively about student financial aid policy. He has testified before Congress and federal/state agencies about student aid on several occasions. Mark has been quoted in more than 10,000 newspaper and magazine articles. He has written for the New York Times, Wall Street Journal, Washington Post, Reuters, Huffington Post, U.S. News & World Report, Money Magazine, Bottom Line/Personal, Forbes, Newsweek and Time Magazine. He was named a Money Hero by Money Magazine. He is the author of five bestselling books about scholarships and financial aid, including How to Appeal for More College Financial Aid, Twisdoms about Paying for College, Filing the FAFSA and Secrets to Winning a Scholarship. Mark serves on the editorial board of the Journal of Student Financial Aid and the editorial advisory board of Bottom Line/Personal (a Boardroom, Inc. publication). He is also a member of the board of trustees of the Center for Excellence in Education. Mark previously served as a member of the board of directors of the National Scholarship Providers Association. Mark is currently Publisher of PrivateStudentLoans.guru, a web site that provides students with smart borrowing tips about private student loans. Mark has served previously as publisher of the Cappex.com, Edvisors, Fastweb and FinAid web sites. He has previously been employed at Just Research, the MIT Artificial Intelligence Laboratory, Bitstream Inc. and the Planning Research Corporation. Mark is President of Cerebly, Inc. (formerly MK Consulting, Inc.), a consulting firm focused on computer science, artificial intelligence, and statistical and policy analysis. Mark is ABD on a PhD in computer science from Carnegie Mellon University (CMU). He has Bachelor of Science degrees in mathematics and philosophy from MIT and a Master of Science degree in computer science from CMU. He is also an alumnus of the Research Science Institute program established by Admiral H. G. Rickover.

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