What is H.R. 795?
H.R. 795 is the most exciting thing happening in student loans right now. Introduced in February by Representative Rodney Davis – R, Illinios – the bill “amends the Internal Revenue Code to extend the tax exclusion for employer-provided educational assistance to include payments of qualified education loans by an employer to either an employee or a lender.” Or, in plain English, student loan contributions from an employer would be treated in roughly the same way as 401(k) contributions and tuition reimbursment. It’s currently in the House Committee on Ways and Means. I’m hopeful that it won’t die there because passing this bill would mean massive relief to the student debt crisis, although with the House focused on healthcare and tax reform it could be awhile.
This is huge, guys! One of the reasons 401(k) benefits are so prevalent is because they’re tax deductible. And this is on both ends: for both the employer and the employee. This creates incentive to contribute for both parties. As mentioned in Your Company Needs to Offer Student Loan Repayment Benefits NOW (link to this post), only about 4% of companies nationwide offer student loan repayment benefits today, and the current lack of deductibility is the foremost reason. Employer assistance with student loan repayment is considered taxable income for the employee and is not considered pre-tax deductible for the company. While we at Spared are of the belief that this is a benefit millennial employees want regardless, there’s not a TON of incentive for employers to offer it yet. H.R. 795 could change all of that by allowing employers to make up to $5,250 in tax-free contributions to their employees’ student loans.
Net Tax Effect
Benefits are ultimately about financial stability and morale from an employee perspective, so let’s consider the same employee (codename Bob) pre and post the passing of H.R. 795. We’ll assume that both have student loans worth $10,000 at a 5% interest rate. For the purposes of this example, we’ll also assume that the employee is using Spared, generating $50 per month in round-ups, and their employer is matching the employee contribution through the app. Obviously, this is independent of a number of other factors affecting tax exposure. I’ve put this in a chart instead of writing it out.
So which Bob do you think is happier with the situation, has better morale? I’d say post H.R. 795 Bob. Passing H.R. 795 will absolutely skyrocket the number of employers that offer student loan repayment assistance benefits nationwide and create a happier, more engaged, and more stable millennial workforce. If you’re feeling froggy, write your congressman! What do you guys think about this? Is it something you want? We’d love to hear your opinions!