An Earned Student Loan Repayment Deduction as a Federal Non-Taxable Employee Fringe Benefit: A Tax Polilcy Proposal

• In Event: Public Interest 3

Abstract

Student loan indebtedness is the only kind of household debt in the United States that has continued to rise through the Great Recession and now is the second largest balance after mortgage indebtedness (http://www.newyorkfed.org/studentloandebt/). The number of student loan borrowers has increased by 70 percent between 2004 and 2012. Moreover, the average amount borrowed increased nearly 8 percent between 2001 and 2012. A 2013 study by the New York Federal Reserve Bank revealed that the average indebtedness of borrowers under age 30 is $21,402. Several years ago, in 1995, then College Board president Donald Stewart cited that Congress’s solution to student aid was in the form of loans, which caused the nation to face, “a deeply mortgaged future . . . we as a society are co-signing the mortgage—and paying a high social cost as well” (College Board, 1995, p. 11). The purpose of this paper is to examine the challenges of student loan debt by crafting a possible solution to be considered by Congressional lawmakers that would benefit both employers and employees known as the Earned Student Loan Repayment Program. This tax proposal would induce employers to pay off a portion of an employee’s student loans based on positive job performance (in lieu of a bonus or a portion of earnings). Structured as an inducement policy, and based on positive employment outcomes, this proposal would also amend Internal Revenue Code §108, which taxes individuals for discharge of indebtedness. This proposal would allow employers to reward employees for their hard work by repaying up to $5,000 of their outstanding student loans per year, causing potential FICA tax savings by the employer and employee.

Author

• Benjamin R Silliman, St John's University