Section 127: The Tax-Free Way to Help Employees Pay Student Loans
Section 127 of the IRS tax code allows employers to provide up to $5,250 per year in tax-free student loan repayment assistance. Here's how to set it up.
What is Section 127?
Section 127 of the Internal Revenue Code allows employers to provide up to $5,250 annually in educational assistance — including student loan repayment — as a tax-free benefit. This means the employer gets a deduction, and the employee pays no income tax on the benefit.
Key Requirements
To qualify, the employer must have a written educational assistance plan that doesn't discriminate in favor of highly compensated employees. The benefit must be for loan repayment on qualifying education loans, and the plan must meet IRS documentation requirements.
Strategic Deployment Options
Organizations can deploy Section 127 benefits in tiers — focusing first on employees with the highest loan burden, structuring payments to maximize retention impact, or distributing broadly as an organizational benefit. Our Corporate Impact Calculator can model the tax savings and net cost for your specific workforce composition.