State lawmakers Tuesday introduced a tax relief they said could tackle steep levels of student loan debt, while tackling problems businesses face in finding and retaining employees in a competitive job market.
Representative Kate Lieber-Garabedian told the Joint Revenue Committee that her bill would “establish a tax relief for Massachusetts employers who help their employees pay off student loan debt,” with a maximum annual exemption of $2,000 per employee.
Melrose, a 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 US has already been identified as the next major financial bubble to burst. It only tracks mortgage loans as the main hindrance to family finance.
According to the Student Borrower Protection Center, as of 2020, there were 871,600 student loan borrowers with debts of approximately $36 billion.
Seven out of 10 recent college graduates owe an average of $37172, with about 65% of that debt incurred by those under the age of 40.
Most worrisome, according to the Federal Reserve, student loan debt held by those 40 and older averages about $34,000.
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.
Domestically, we just need to look at the burden on graduates of our leading public university. According to UMass Amherst’s own numbers, 68% of its 2018 graduates left with average debts of more than $31,000.
Democratic Senator Lowell Ed Kennedy, who introduced an accompanying bill in the Senate, said Tuesday that the legislation would come at a “relatively modest cost” to the state, with the Revenue Department estimating that changing tax policy would cost 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.
This is in line with the national trend where only 4% of companies offer benefits.
At the federal level, Congress has begun its own employer-assisted debt repayment plan, along with employee tax protections.
The Consolidated Appropriations Act of 2021, which was signed into law in December 2020, extends a five-year COVID-19 exemption that allows repayment of an employer-provided student loan as a tax-exempt benefit for employees under Section 127 of the Internal Revenue Code.
Until 2025, employers can make contributions of up to $5,250 per employee per year for eligible education expenses, including tuition or student loan assistance, without increasing the employee’s total taxable income.
State legislators’ proposals offer an employer-friendly tax break of $2,000 per worker — a feature missing from federal debt assistance legislation — that might tempt Massachusetts businesses to get involved in reducing the student debt burden on employees.
This legislation makes dollars and makes sense to all involved.
Paying the employer $2,000 of employee college debt should help companies attract the type of worker they are looking for, especially at a time when highly skilled jobs cannot be filled.
Job seekers can view this $2,000 stimulus as a signing bonus that, in addition to any loan payments they make, will significantly reduce the time required to retire from college debt.
Otherwise, workers may have to postpone their retirement due to this outstanding loan.
For potential employees, the trick now is to find a company that participates in both state and federal loan repayment programs.