On August 6, 2025, the IRS issued a reminder that principal and interest charges on employees’ qualified education loans are eligible expenses under educational assistance programs. Employers can either reimburse the employee or pay the lender directly for qualified education loan expenses up to the $5,250 annual limit. Note that other eligible expenses include items such as current tuition, fees, books, and supplies.
To qualify as a Section 127 educational assistance program, the employer plan must be written and meet certain other requirements, including that it cannot discriminate in favor of highly compensated employees regarding eligibility for benefits. For further information, please see our July 2, 2024, article, summarizing IRS FAQs on educational assistance programs.
Employers who sponsor or are considering sponsoring educational assistance programs should be aware that student loan repayment expenses are currently qualified. This provision was set to expire December 31, 2025. However, the OBBBA made it permanent and indexed it to inflation for tax years starting January 1, 2026.
Employer Takeaway
Educational assistance programs can provide a valuable benefit to employees facing student loan expenses. Fortunately, employers can continue to offer this benefit to their employees after December 31, 2025, and can expect to see the annual permitted maximum benefit amount increase over time as a result of inflation-indexing under the OBBBA.