Tax-Free Student Loan Repayment Benefits

Author: Lauren Andrade (QAMO ‘27)
Publication Date: March, 2025.

In 2020, Congress enacted new legislation allowing employers to provide tax-free student loan repayment assistance for their employees. As a result of the law, employers can elect to pay up to $5,250 per year towards each employee’s student loans, and those payments are excluded from the employee’s income for purposes of income and payroll taxes. The program is set to expire on January 1, 2026 [1]. As of February 2025, it had helped facilitate more than $100 million in tax-free student loan employer contributions [2].

On July 25, 2024, the Employer Participation in Repayment Act, a bipartisan bill, was introduced in both the United States House of Representatives and Senate to permanently extend these tax-free benefits for employees. Advocates say that permanently extending tax-free student loan repayment assistance would help employees repay their student loans, reduce the financial burden on borrowers, and help firms retain top talent.

However, others argue that the tax break is expensive and does little to help students burdened by their student loans because of its design. In order to benefit from the tax break, a borrower needs to be employed by an employer that sponsors a plan, and the borrower’s tax savings depend on their tax bracket, with the highest earners getting the largest break.

To assess these claims, this report draws on data from the Bureau of Labor Statistics’ National Compensation Survey from 2020 to 2024 and investigates which workers benefit the most from tax-exempt student loan repayment benefit programs.

Student Loan Benefits are More Common Among the Highest Paid Workers
Figure 1 shows the percentage of civilian workers with student loan repayment benefits by income quartile since 2020.

Figure 1. Percentage of Civilian Workers with Student Loan Repayment Benefits by Income Quartile, 2020-2024

Note: The figure shows the percentage of civilian workers that had access to student loan repayment benefits from 2020 to 2024 by income quartile. The highest quartile of income earners is labeled “4th.” Source: Bureau of Labor Statistics.

High-income workers are significantly more likely to receive student loan repayment assistance from employers. As of last year, 9% of workers in the top quartile of the earnings distribution have access to student loan repayment benefits, compared to 3% of workers in the bottom quartile of the earnings distribution. Simply put, the benefits of tax-free student loan repayment are concentrated among high-income workers. In contrast to the stated intention of the program to help struggling student loan borrowers, few workers at the bottom of the income distribution have access to this benefit.

Higher Paid Workers in Private Industry Benefit More from Tax-Free Benefits
Figure 2 shows the percentage of private industry and government workers with student loan repayment benefits by income quartile in 2024.

Figure 2. Percentage of Private Industry and Local and State Government Workers with
Student Loan Repayment Benefits by Income Quartile, 2024

Note: The figure shows the percentage of private industry and local and state government workers that had access to student loan repayment benefits by income quartile in 2024. Source: Bureau of Labor Statistics.

There is more of a disparity between high-income and low-income workers in private industry as compared to those in local and state governments. While there is a 7% gap between private industry workers in the top and bottom quartile of the earnings distribution, there was only a 2% gap between the bottom and top quartile of the earnings distribution for government workers. Additionally, for private industry workers, there is a consistent increase as workers move into higher income quartiles. In contrast, access to the benefit is not always increasing as government workers move up in income quartiles. Nevertheless, while this figure reinforces that the benefits of tax-free student loan repayment are concentrated among high income workers, access to them is greater for private industry than government workers.

Student Loan Benefits are Most Common Among Health Care Workers
Figure 3 shows the percentage of civilian workers with student loan repayment benefits in 2024 across eleven industries.

Figure 3. Percentage of Civilian Workers with Student Loan Repayment Benefits by Occupation, 2024

Note: The figure shows the percentage of civilian workers that had access to student loan repayment benefits in 2024 for a subset of occupations. Source: Bureau of Labor Statistics.

Nursing is the occupation with the highest access to student loan repayment benefits, which reflects the growing number of health care employers using student loan repayment benefits as a tool to recruit and retain employees. Nearly 1 in 5 nurses has access to employer-based student loan benefits. Other health care occupations are second, with 11% of workers receiving student loan repayment benefits.

Worker occupations that require less education are much less likely to have access to student loan repayment benefits. Fewer than 1 in 20 workers in manufacturing or mechanics have access to these benefits, while approximately 1 in 50 agricultural workers have access to these benefits.

Unsurprisingly, occupations with higher percentages of college-educated workers are more likely to have student loan repayment benefits as employers offer benefits that appeal to their workers. While this benefit does not strictly apply to higher education (any continuing education is eligible), the benefits are not equally received by all workers [3].

Student Loan Benefits are Most Commonly Offered by Large Employers
Figure 4 shows the percentage of civilian workers with student loan repayment benefits in 2024 by company size.

Figure 4. Percentage of Civilian Workers with Student Loan Repayment Benefits by Company Size, 2024

Note: The figure shows the percentage of civilian workers that had access to student loan repayment benefits in 2024 based on the size of the company. Source: Bureau of Labor Statistics.

To provide the tax benefit to employees, employers must establish an educational assistance program, which requires some level of sophistication and investment on the part of the employer. As a result, larger employers are more likely to provide the benefit, as shown in Figure 4. In companies with less than 50 people, only 4% of workers have student loan repayment benefits. This percentage increases to 9% for workers in companies with more than 500 people, a 125% increase from the smallest companies. As shown, large employers are the most equipped to offer these types of benefits programs, which means that access to this tax break varies significantly across workers depending on who they work for.

Conclusion
Overall, workers in higher income quartiles, on average, have more access to student loan repayment benefits than those in lower income quartiles. In addition, whether a worker can access these tax benefits depends on what kind of job they do and the size of their employer. Notably, if a borrower is not employed, they cannot receive any benefit–which makes the program particularly ill-suited to helping individuals at greatest risk of struggling with their loans.