On August 6th, 2025, the IRS sent out a reminder that through December 31st, 2025, employers can pay up to $5,250 per year toward an employee’s student loan debt… Tax-free! This tax advantage significantly reduces both federal income tax and payroll taxes, in turn, stretching employee’s take-home pay even further.
But there’s more… The recent “One Big Beautiful Bill Act” (OBBBA), signed July 4th, 2025, makes this provision permanent. Also, starting in 2026, the $5,250 cap will automatically adjust for inflation. So, employers can directly pay toward an employees student loans, and both sides avoid the taxes on it.
It’s a Raise in Disguise
This little-used perk could be one of the most powerful benefits in the modern workplace. Normally, if an employer just gave you $5,250, you’d owe taxes on it (and they’d have to pay payroll taxes). But under this program, the full amount goes straight to student loan debt. It’s like getting a bonus you actually get to keep, it takes away your debt instead of your paycheck.
Different Paths Different Debt
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Bachelor’s graduates leave school with about $29,300 in loans. For them, a max employer benefit could wipe out nearly 18% of that balance in just one year.
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Master’s graduates average $66,000 in debt. The jump happens because graduate tuition is higher, assistantships don’t always cover living costs, and many are stacking debt on top of what they already borrowed for undergrad.
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Medical graduates average $264,000+. Those extra years of school come with tuition, fees, board exams, and living expenses when working full-time isn’t realistic. Employer repayment won’t get rid of six figures overnight, but every $5,250 helps chip away at compounding interest.
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Law graduates average $180,000+ in student debt. And… entry-level public service salaries can make that repayment pretty tough, so $5,250 a year hits especially hard here.
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Millions of parents (not just students) have federal student loan debt for their kids’ tuition, too. Parents who took out Parent PLUS loans have, on average, $33,000 in debt. Employers can help pay those debts off too, which really expands who can benefit from it.
The Bigger Picture
The $1.77 trillion total is astronomical, and its impact becomes even clearer when you look at what it is really costing people. Around 60% of student loan borrowers say their debt has greatly delayed them from saving for retirement, buying a house, travelling, or even starting a family. Nearly 1 in 5 Gen Z workers have already taken out loans, while so many Gen X and Boomers are still paying off their own student loan debt, or a Parent PLUS loan they took out for their kids. This benefit has potential to positively reach across generations, not just affect new graduates.
Why Employers Are Paying Attention
Student loan debt is also an HR issue. Top talent is choosing where to apply, who to stay with, and how long to stick around based on what employers really offer them. Today, more and more people are sacrificing salary for benefits. I’ve read some are willing to make as much as 20K less in salary for a workplace that actually supports their mental health and their needs outside of work, like helping with student load debt.
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Recruitment Edge: With unemployment near record lows, loan repayment can be more attractive than a 401(k) match for younger candidates. Companies like Fidelity and PwC already offer repayment, and they’ve publicly talked about its success in hiring.
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Retention Booster: Benefits that touch real pain points keep people longer. When debt relief is tied to employment, workers have a much bigger incentive to stay with the company.
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Equal Education Perks: Employers have already been getting tax breaks for tuition reimbursement. This policy puts student loan repayment on that same level, meaning companies don’t have to choose between supporting new degrees or helping pay off old ones.
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According to SHRM: Only 9% of employers currently offer student loan repayment. Yet surveys show 81% of employees want it, 71% would switch jobs for it, and 79% would stay longer if it were offered.
That contrast of “few offer, many want,” highlights the potential opportunity to stand out as one of the best companies for diversity and inclusion. Companies that get on board early can brand themselves as forward-thinking, employee-first, and truly inclusive employer in a work-scape where benefits matter as much as, if not more than, salary.
The Fine Print
With any offer, the details matter the most. This student loan repayment program comes with very clear rules on exactly how much can be paid, who qualifies for it, and when it kicks in.
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Annual Cap: $5,250 per employee, per year. Employers can choose to pay less, like PwC who maxes out at $1,200 a year ($100 a month), but paying anything more than that amount loses its tax-free status.
- Stacking Benefits: Workers can use the $5,250 with repayment plans or through the Public Service Loan Forgiveness program. Which means this benefit can seriously accelerate student loan forgiveness for people in public/nonprofit roles.
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Eligible Loans: Federal and most private student loans qualify. The payments must go directly toward the debt, not through an employee’s paycheck.
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Employer Choice: The program is voluntary. Workers should check if their employer participates or encourage HR to add it.
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Timeline: It’s active now. Adjustments to match inflation kick in permanently January 2026. Employers can begin adding it now to their benefit packages.
The program is crystal clear, but it’s true impact will depend on it’s awareness and adoption.
Bottom Line
This policy may not wipe out the mountain of $1.77 trillion of student debt, but it is a rare win-win policy: workers get real relief, and employers have a new perk to attract and keep top talent.
Debt has completely shifted how we go about life milestones, from buying homes to starting families. That $5,250, is peace of mind, leverage for the future, and a sign that student debt isn’t just an individual problem anymore. If you’re an employee, it’s worth asking HR about it now. If you’re an employer, 2026 is right around the corner, now’s the time to get on board.
FAQs
Does my employer have to offer this?
No. It’s voluntary. Some companies already do (like PwC and Fidelity), but most don’t. If yours doesn’t, share the IRS and OBBBA updates with HR, it may spark them to add it.
Can this benefit stack with Public Service Loan Forgiveness (PSLF)?
Yes. If you’re in public or nonprofit work, the $5,250 counts toward qualifying payments while reducing your balance faster. That can shorten your student loan forgiveness timeline.
What kinds of loans qualify?
Most federal and private student loans are eligible, including Parent PLUS loans. The key requirement: payments must go directly toward the loan, not into your paycheck.
Is $5,250 really enough to make a difference?
For bachelor’s-level borrowers, it can wipe out nearly a fifth of their balance in one year. For those with larger debts, it won’t erase the whole burden, but it does slow down compounding interest—something financial experts say is crucial.
When does the permanent program start?
January 2026. Through December 2025, it’s still capped at $5,250 under the temporary IRS allowance. Starting in 2026, the cap will adjust for inflation every year.
Will I pay any taxes on it?
No, up to the annual limit. Anything beyond $5,250 would be taxed as income, but within the cap, both employer and employee avoid taxes.