IRS Opens Door to Student Loan Repayment Employee Benefit

One Company's Solution to Both The Retirement and Student Loan Problem

For decades, the Federal Government has been subsidizing and encouraging employers to help workers save for their own retirement through workplace retirement plans. In a recent Private Letter Ruling, the IRS is opening the door to employers and employees getting favorable tax treatment for helping employees pay off their student loan debt. Although the ruling only applies to this one company, it signals the IRS is open to allowing companies to set up 401(k) plans that reward employees who pay down their student loans with tax-deferred retirement account contributions.

Employees Can Use The Same Dollars to Pay Down Student Loans and Save for Retirement

The 401(k) is the most widely-used workplace retirement account, and allows employers and employees to deposit money into a retirement account for workers while allowing both a tax deduction. Additionally, to help ensure the average worker is benefited by 401(k) plans, the rules encourage and sometimes require employers to make matching contributions to the retirement account, whereby the employee defers income into the account and the employer kicks in additional money.

How it Works

The Private Letter Ruling will allow the employer to use the same mechanism to assist with student loan repayment. Under the plan, an employee can receive the company 401(k) match by either contributing to their 401(k) retirement account or by making payments to their student loan balances. While the employee will not get a tax deduction for the student loan payments, they will get the dual benefit of both decreasing their student loan balance and increasing their retirement savings.

The Benefit to the Employer

As an employer, the benefits of a program like this are numerous. First, the program allows employer contributions to retirement accounts to have favorable tax treatment even if the employee didn't contribute to the account. More importantly, the program offers the employer a differentiated employee benefit to attract more talented workers. Considering there is a growing amount of evidence that student loan assistance increases employee loyalty and longevity with a company, this can be a strategic advantage for the company in the current tight labor market.

About Private Letter Rulings

When a taxpayer is considering a new tax planning strategy, they often would like to know the IRS' opinion on the strategy before it's implemented. This allows the taxpayer to avoid a potential audit or lawsuit because the IRS has already blessed (or rejected) the strategy. The taxpayer requests a Private Letter Rulings from the IRS to get a definitive answer on the strategy. But Private Letter Rulings have a number of limitations.

Only This One Employer Can Use the Ruling

The most important limitation is no one except that one taxpayer can use the Private Letter Ruling as authoritative in defending against an audit. While the the rulings give other taxpayers an indication of what the IRS would think in their case, the IRS can always (and often does) change reject another taxpayer using the same strategy as the one they blessed in the ruling.

Another important limitations is the ruling only applies to the exact circumstances in the facts provided to the IRS for the Private Letter Ruling. If any of the facts change, the IRS may reject the strategy because it does not match the set of facts presented to them.

How To Offer A Similar Benefit at Your Company

If your company is interested in implementing a similar strategy, it is important to work with an accountant, tax attorney, or financial planner familiar with this area of tax planning. Furthermore, you will want to have your own Private Letter Ruling based on the specific facts and circumstances of your company and its 401(k) plan.


Joshua Escalante Troesh is a tenured professor of Business at El Camino College and the founder of Purposeful Finance. He is also the owner of Purposeful Strategic Partners, a fiduciary and fee-only financial planning firm and a Registered Investment Advisor. He can be reached for comment at