While individual stimulus checks, unemployment benefits, and small business relief may have been the headlining provisions passed into law with the CARES Act of March 2020, the bill also set forth into motion a lesser-known opportunity: an amendment to Section 127 of the Internal Revenue Code that grants employers the ability to make up to $5,250 in tax-advantaged contributions towards an employee’s student loan debt each year.

But because the amendment was originally set to expire at the end of the calendar year, many employers who already offer a Section 127 Plan — the most common type of  Educational Assistance Programs (EAPs) — felt the nine month period was too short to justify the resources needed to implement a new benefit. And for the 92 percent of employers who don’t already offer a Section 127 Plan, it was largely a moot point. 

However, now that the Consolidated Appropriations Act — which was signed on December 27, 2020 — has extended the Section 127 amendment through the end of 2025, its potential impact is trending upwards in a big way. 

Between this new opportunity for tax savings and the sobering facts that 43.2 million Americans carry student loan debt, that student debt is holding workers back at home and in the office, and that women and people of color carry a disproportionate amount of student debt, employers are recognizing that the time for student loan assistance benefits is now. 

If you’re an employer considering a student loan repayment benefit, here’s what you need to know about Section 127 Plans:


  • Any legal business can create a Section 127 Plan. 
  • Any employee over the age of 21 is eligible to participate in the Plan, although employers can choose to only offer the benefit to specific groups of employees — for example, based on tenure or organizational rank — as long as the eligibility criteria is not discriminatory (more on that later). 

What a Section 127 Plan covers

  • A Section 127 Plan allows an employer to contribute up to $5,250 per employee each year to cover:
    • Repayment, both principal and interest, of preexisting student loan debt that was incurred 1) in pursuit of a “recognized education credential” and 2) while the employee carried at least a half-time course load. 
    • Tuition and other qualified education-related expenses (such as fees, books, and supplies) incurred while the employee works for the employer offering the benefit. 
  • Any educational assistance received by an employee (up to $5,250 per annum)  won’t count towards their taxable income, and all educational assistance contributed by an employer (up to $5,250 per employee per annum) is tax deductible. 

What a Section 127 Plan doesn’t cover

  • Food, housing, transportation, courses related to sports or hobbies, fees for extracurricular activities, and items that the employee can keep after the eligible courses have been completed are not eligible for Section 127 benefits. In other words, employees will have to cough up their intramural disc golf team dues on their own. 
  • Only expenses incurred for the employee’s own education and the employee’s own student debt are eligible — spouses and dependents need not apply. 
  • No more than five percent of an employer’s annual educational assistance can be granted to employees who each own more than five percent of the company or to those employees’ dependents or spouses (provided they are also employees). 

Plan requirements 

  • The employer’s Section 127 Plan must be, well, a plan. A specific written plan detailing the program must be made available to employees, and employees must be given reasonable notification — such as in the weeks leading up to an annual enrollment period — about the program.
  • While employers can choose to only offer Plan benefits to specific groups of employees, discriminatory eligibility criteria that benefits highly compensated employees (HCEs) is prohibited. Under current tax code, an HCE is one who earned more than $130,000 in 2020 or owns more than five percent of the company. 
  • Employers cannot offer eligible employees a choice between Section 127 benefits and taxable compensation (whether as increased salary, cash bonus, or any other taxable fringe benefit).

If you’re ready to learn more about how you can implement student loan repayment benefits, Candidly can help. With tools for making tax-advantaged, Section 127-friendly contributions to employees’ student loan debt, using spare change and cash back to chip away at debt, finding personalized loan refinancing plans and more, we make it easy for employers to help workers take charge of their financial health.