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The One Big Beautiful Bill Act (OBBBA) made headlines for narrowing students’ abilities to repay student loans, but the bill may have another significant effect on students. Through the CARES Act, employers could contribute towards employees’ loans tax-free. This was a temporary measure, but the OBBBA has made the tax exclusion permanent. The annual $5,250 cap on tax-free contributions will be adjusted for inflation starting in 2026. We’ll look into how these changes could affect students and their increased debt burden as student loan payments resume.
Key Takeaways
- The OBBBA makes the tax exclusion for employer-provided student loan repayment assistance permanent.
- This exclusion could entice employers to provide some student loan assistance, which could also help them retain employees.
- The tax exclusion takes a step toward addressing student debt, but since few employers offer student loan assistance, it won’t benefit the vast majority of borrowers.
Will the OBBBA Help or Hurt Borrowers? What It Could Mean for You
Financial Relief for Employees
When employees receive employer contributions toward debt repayment, these contributions are tax-free, meaning they won’t face a tax bill at the end of the year for the assistance they receive. Instead, employees can direct more of their income toward debt repayment, which could help them stay on top of their loans and pay them off faster.
Offsetting Increased Debt Payments
The OBBBA has dramatically changed student loan financing and repayment. Existing students won’t have access to income-driven repayment (IDR) plans, and, although the SAVE plan is still tied up in the courts, interest has resumed, so borrowers will see their balances increase. Future students will have less access to federal aid to pay for school, which can make higher education more costly.
Note
If employers increasingly assist their staff with paying for school, it could help offset the increased cost that students are now faced with.
A Tool to Attract and Retain Talent
In a competitive job market, employers often advertise benefits like paid time off, health care coverage, retirement packages, and more. As more young people graduate with increasingly high student loan debt, a company can stand out by offering student loan payment assistance. Plus, companies can structure the assistance to play out over a few years, which can help employers retain their employees.
Increased Employer Adoption
In the past decade, employers have been hesitant to adopt education assistance programs without being sure the tax exclusion would continue. Since employers didn’t want to offer assistance and then remove it, many haven’t offered it at all.
However, with the permanent tax exclusion, employers may be more likely to adopt and offer student loan repayment programs going forward.
The Bottom Line
Making the tax exclusion for employer-provided student loan repayment assistance permanent could encourage more employers to help their employees pay for school. While this is a step in the right direction, it does little to help employees of companies that do not or cannot provide student loan repayment assistance.
