Student loan repayment as an employee benefit: the employer's 2026 guide

According to the Department of Education's Federal Student Aid office, 44.6 million Americans carry federal student loan debt as of fiscal year 2025. For many of your employees, those payments are the single biggest obstacle to building financial stability: they're choosing between paying down loans and saving for retirement, and they're losing that race every month.

Employers now have two permanent, tax-advantaged tools to help. Most haven't used either one.

If you've been watching this space, you know the landscape shifted meaningfully in the last two years. The One Big Beautiful Bill Act, signed into law in 2025, made employer student loan repayment assistance a permanent tax-free benefit. And SECURE 2.0, which took effect in January 2024, created an entirely separate mechanism: letting employers make 401(k) matching contributions on behalf of employees who are paying down student debt instead of contributing to their retirement account.

This guide explains both, who they're right for, and what it actually takes to implement them.

What changed: Section 127 is now a permanent benefit

Section 127 of the Internal Revenue Code has existed for decades as a way for employers to offer tax-free educational assistance to employees, covering things like tuition, fees, and books. For years, student loan repayment was not included.

The CARES Act changed that in 2020, temporarily allowing employers to contribute up to $5,250 per year toward employee student loan balances on a tax-free basis. The exclusion applied to both parties: the employer's contribution wasn't subject to payroll taxes, and the employee didn't count it as taxable income. It was a real benefit, but it came with an expiration date that kept getting extended.

The One Big Beautiful Bill Act removed the expiration. As of 2025, the Section 127 student loan repayment exclusion is permanent.

That matters for planning. Temporary benefits are hard to build programs around. A benefit that expires creates administrative headaches when you wind it down and recruiting complications when competitors keep theirs running. Permanence makes this worth building into your benefits strategy, not just piloting as a one-year experiment.

What the benefit covers: Employers can contribute up to $5,250 per employee per year toward qualified student loan repayment, tax-free. That $5,250 limit is shared with traditional tuition reimbursement: if you offer both, the combined annual exclusion is still $5,250 per employee. Contributions above that threshold are taxable. The loans covered must be qualified student loans, meaning they were taken out to pay for higher education expenses. Private loans qualify alongside federal loans.

The SECURE 2.0 angle: 401(k) matching on student loan payments

SECURE 2.0, passed in late 2022 and effective January 1, 2024, introduced a separate provision that addresses a different problem entirely.

The problem: employees burdened by student loan payments often can't afford to contribute to their 401(k). That means they miss out on employer matching contributions. Over time, that's a significant retirement savings gap, and it falls hardest on younger workers who most need the compounding time.

The SECURE 2.0 fix: employers can now treat an employee's qualified student loan payment as if it were an elective 401(k) deferral for the purpose of calculating the employer match. The employee makes a loan payment to their servicer. The employer makes a matching contribution to the employee's 401(k). The employee doesn't have to choose between paying down debt and saving for retirement.

A few important mechanics:

• Employees must certify annually that they made qualifying student loan payments
• The match is calculated the same way your existing 401(k) match formula works
• Employees can still contribute to the 401(k) directly, but the match can't exceed what the match formula would allow on combined contributions
• This requires a plan amendment, which your 401(k) administrator or recordkeeper handles

This provision is optional. Employers choose whether to add it to their plan. If you sponsor a 401(k), SIMPLE IRA, or 403(b), you're eligible to offer it.

Why HR leaders are paying attention now

Student loan debt isn't evenly distributed across your workforce. It's concentrated among employees under 40, employees who pursued graduate or professional degrees, and employees in fields like healthcare, education, social work, and technology where advanced credentials are expected or required.

That profile maps almost exactly onto the talent segments where mid-size and enterprise employers are most competitive for hiring and most vulnerable to attrition.

According to the International Foundation of Employee Benefit Plans' 2024 Education Benefits Survey, only 14% of organizations offer student loan repayment assistance, with another 18% considering adding it, making it a genuine differentiator in markets where most of your competitors aren't yet offering it.

The financial wellness argument is simpler than it sounds: employees who are financially stable show up differently at work. According to PwC's 2026 Employee Financial Wellness Survey, 59% of employees are stressed about their finances, and that distraction translates into meaningful productivity loss across the workforce. A benefit that addresses the single largest source of financial pressure for a large segment of your workforce is not a nice-to-have.

Which approach is right for you: Section 127 or the SECURE 2.0 match?

These two benefits are complementary, not interchangeable. Here's how to think about which to prioritize.

Section 127 direct repayment assistance

• Best for: employees actively paying down loans who need cash flow relief
• How it works: employer contributes directly toward the loan balance, tax-free up to $5,250/year
• Administration: requires a written Educational Assistance Plan; contributions flow through payroll or directly to the servicer depending on your setup
• Good fit if: your workforce has high loan balances and limited cash to make payments

SECURE 2.0 student loan match

• Best for: employees who are making loan payments but skipping retirement contributions
• How it works: loan payments trigger employer 401(k) match contributions without requiring employee deferral
• Administration: requires a 401(k) plan amendment; your recordkeeper manages the certification and matching process
• Good fit if: your workforce trends younger and you're seeing low 401(k) participation rates alongside high student debt

The two benefits can coexist. An employee could receive both Section 127 assistance toward their loan balance and a 401(k) match on their loan payments. The IRS has confirmed these provisions don't conflict. Implementing both gives employees the most complete picture of support and gives you the most complete story to tell in recruiting.

If you're starting with one, the Section 127 program is generally simpler to implement and has more immediate financial impact for employees. The SECURE 2.0 match makes more sense as a second step once your 401(k) plan is ready for the amendment process.

What implementation actually involves

Neither of these benefits requires building something from scratch. The infrastructure for both largely exists inside systems you're already running.

For Section 127 direct assistance

What you need to set it up:

• A written Educational Assistance Plan that meets IRS requirements — it must be in writing, can't favor highly compensated employees, and must be communicated to all eligible employees
• Your benefits broker or a benefits attorney can draft or review the plan document
• Once in place, contributions are administered through payroll and reported accordingly

How to structure your contribution (pick one):

• Flat contribution per employee
• Tiered by tenure
• Matched to a percentage of the employee's own payments

Each approach has different cost implications and sends a different message to employees.

For the SECURE 2.0 student loan match

What you need to set it up:

• A formal plan amendment to your 401(k) or other eligible retirement plan, initiated and approved through your plan administrator or recordkeeper
• A certification process: employees must annually verify they made qualifying loan payments, and your plan needs a mechanism to collect and track those certifications
• Some recordkeeping platforms have built certification workflows into their systems, while others require a manual process or a third-party administrator

Before assuming it's turnkey, ask your recordkeeper what their implementation actually looks like.

In both cases: your benefits broker should be involved in the design phase. The tax mechanics are straightforward, but decisions around eligibility, contribution amounts, and how the benefit interacts with your existing offerings have downstream effects on cost, equity, and employee perception.

Frequently asked questions

Is employer student loan repayment taxable to the employee?

Not up to $5,250 per year. Under Section 127, employer contributions toward qualified student loan repayment are excluded from the employee's taxable income up to that annual limit. Contributions above $5,250 are included in the employee's gross income and subject to income and payroll taxes. The $5,250 limit applies to the combined total of student loan repayment assistance and any tuition reimbursement provided in the same year.

Does the $5,250 cap cover both tuition reimbursement and student loan repayment?

Yes. The $5,250 annual exclusion under Section 127 is shared across all educational assistance, including tuition reimbursement and student loan repayment. If you offer both benefits, the tax-free exclusion applies to the combined amount.

Can we offer both the Section 127 benefit and the SECURE 2.0 student loan match?

Yes. These are separate programs under different sections of the tax code and they don't conflict. An employee can receive Section 127 assistance toward their loan balance and also receive a 401(k) employer match on their student loan payments in the same year. The IRS has issued guidance confirming these provisions can operate simultaneously.

What's the difference between student loan repayment assistance and tuition reimbursement?

Tuition reimbursement covers the cost of ongoing education: courses, degree programs, professional certifications that the employee is currently pursuing. Student loan repayment assistance covers debt from education the employee already completed. Both fall under Section 127, and both share the $5,250 annual tax exclusion. They serve different employee populations and different moments in an employee's career.

Do both federal and private student loans qualify?

For Section 127, yes. Both federal and private qualified student loans are eligible. For the SECURE 2.0 match, the IRS defines qualified student loan payments broadly and includes both federal and private loans taken out to pay for higher education expenses.

The bottom line

Student loan repayment as an employee benefit isn't new, but it just got a lot more stable. With Section 127 now permanent and the SECURE 2.0 match available for any eligible retirement plan, there's no longer a good reason to wait on a decision. The employers who build this into their benefits strategy now will have a head start on competitors who are still treating it as something to revisit next renewal cycle.

If you want to understand how these benefits fit into your overall benefits program and what implementation would look like for your organization, Nava's advisors can help you model the options and move from decision to launch.