Good News for Employees: IRS Extends Tax-Free Student Loan Repayment Through Employer Educational Assistance Programs

If you’re one of the millions of Americans juggling student loan payments, there’s encouraging news from the IRS, especially if your employer offers an Educational Assistance Program (EAP). Recently, the IRS issued a reminder that employers can continue helping employees pay down their student loans tax-free through December 31, 2025.

What’s an Educational Assistance Program (EAP)? An EAP is a benefit many employers provide to help employees with education-related expenses. Traditionally, these programs covered tuition, fees, books, and other education costs. However, starting in 2020, a significant expansion allowed employers to also pay or reimburse up to $5,250 per year of an employee’s student loan payments tax-free.

IRS Reminder: The Clock is Ticking (But You Still Have Time!) In its recent announcement, the IRS confirmed that employers can continue this expanded use of EAPs for student loan repayments through the end of 2025. That means that through December 31, 2025, any student loan repayments made by your employer under an EAP—up to $5,250 annually—are not subject to federal income tax for you.

Here’s Why This Matters:

• Tax Savings: Normally, if your employer pays part of your debt, that would be considered taxable income. With this provision, you don’t pay federal taxes on up to $5,250 per year in repayments.

• Lower Loan Balances, Faster: With your employer’s help, you can chip away at your student debt more quickly.

 • Recruitment and Retention: Employers offering robust EAPs—including student loan repayment—can attract and retain top talent, especially younger workers burdened by student debt.

How Does It Work?

• Employers can make student loan payments directly to your lender or reimburse you for payments you’ve made.

• The total tax-free benefit for tuition assistance and student loan repayment combined can’t exceed $5,250 per year.

• Employees should check with their HR or benefits administrator to ensure their company’s EAP covers student loan repayments and to learn how to participate. 

What Should Employees Do Now?

• Ask Your Employer: Not all companies offer this benefit, but the recent IRS reminder may encourage more to adopt or expand EAPs. It never hurts to ask!

• Budget for Maximum Benefit: If your employer does offer EAP student loan repayment, plan your payments to take full advantage of the $5,250 tax-free annual limit.

• Stay Informed: This benefit is set to expire at the end of 2025 unless Congress extends it. Keep an eye on IRS updates.

Conclusion

The IRS’s recent reminder is a great opportunity for employees to tackle student loans with their employer’s help. If your company offers an Educational Assistance Program, be sure to see if it includes student loan repayment assistance—and if not, consider advocating for it. With the December 31, 2025, deadline, now’s the time to make the most of this tax-free benefit!

References:

• IRS News Release IR-2024-137: IRS reminds employers and employees that tax-free educational assistance programs can help pay student loans through Dec. 31, 2025

• IRS Topic No. 604 Employer-Provided Educational Assistance

• Section 127 of the Internal Revenue Code • SHRM: IRS Issues Reminder for Tax-Free Student Loan Repayment Benefits

Disclaimer: This blog post is for informational purposes only and does not constitute legal or financial advice.

Employers should consult with a tax professional or legal advisor to set up a compliant Educational Assistance Program.