State lawmakers Tuesday pitched tax relief they say could address the crushing levels of student-loan debt, while addressing problems businesses encounter finding and retaining employees in a competitive job market.
Rep. Kate Lipper-Garabedian told the Joint Committee on Revenue that her bill “would establish a tax exemption for Massachusetts employers that assist their employees with paying off student loan debt,” with an annual exemption capped at $2,000 per employee.
The Melrose Democrat said she sent the committee extensive written testimony detailing “the often-crippling effect of student debt on an individual’s financial well-being.”
Student-loan debt in the U.S. already has been identified as the next major financial bubble to burst. It trails only mortgage loans as the main drag on household finances.
According to the Student Borrower Protection Center, as of 2020, there were 871,600 student loan borrowers who were roughly $36 billion in debt.
Seven out of 10 recent college graduates owe an average of $37,172, with about 65% of that debt incurred by those under 40.
More concerning, according to the Federal Reserve, student loan debt carried by those 40 and older averages nearly $34,000.
And it will only get worse. The Congressional Budget Office estimates that $1.27 trillion in new federal student loans will be added in the next several years.
Locally, we need only look at the burden carried by graduates of our flagship public university. According to UMass Amherst’s own figures, 68% of its 2018 graduating class left with an average debt of more than $31,000.
Lowell Democratic Sen. Ed Kennedy, who filed a companion bill in the Senate, said Tuesday the legislation would come at a “relatively modest cost” to the state, with the Department of Revenue estimating the tax policy change would cost between an estimated $1.8 million and $6.7 million annually.
Kennedy said that Massachusetts companies “have been slow to adopt student loan repayment programs” on their own.
That aligns with the national trend with only 4% of companies offering the benefit.
At the federal level, Congress has initiated its own employer-assisted debt repayment plan, combined with employee-tax protections.
The Consolidated Appropriations Act of 2021, signed into law in December 2020, extends for five years COVID-19 relief that allows employer-provided student loan repayment as a tax-free benefit to employees under Section 127 of the Internal Revenue Code.
Through 2025, employers can make contributions up to $5,250 per employee annually toward eligible education expenses, including tuition or student loan assistance, without raising an employee’s gross taxable income.
Our state lawmakers’ proposals provide an employer-friendly $2,000 tax exemption per worker — a benefit missing from the federal debt-assistance legislation — which may entice Massachusetts businesses to participate in lessening employees’ student-debt load.
This legislation makes dollars and sense for all involved.
A $2,000 employer pay-down of an employee’s college debt should help businesses attract the type of worker they’re after, especially in a time when highly skilled positions can’t be filled.
That $2,000 incentive could be viewed by job seekers as a signing bonus, that combined with any loan payments they make, would dramatically cut the time required to retire that college debt.
Otherwise, workers might be forced to postpone their own retirement due to that unpaid loan.
For prospective employees, the trick’s now finding a company that participates in both the federal and state loan-payment programs.
