Your Employer Can Put $5,250 a Year Straight on Your Student Loans, Tax-Free. Only 1 in 10 Does.

If you’re paying down a student loan and your open enrollment packet shows up this month, there’s a line in it that can be worth $5,250 a year to you. Most people scroll past it, because it reads like tuition reimbursement for a degree they’re not chasing.

It isn’t only tuition. Section 127 of the tax code lets your employer pay “principal or interest on any qualified education loan,” either to you or straight to your servicer, and the first $5,250 a calendar year never counts as your income.

For five years this was a temporary thing, which is the whole reason your HR department may have skipped it. The loan-payment piece arrived in March 2020 with an expiration stapled to it, and the date kept getting pushed. The last version applied only to payments made before January 1, 2026.

That date is gone. Public Law 119-21, at section 70412, struck it out. The IRS confirmed where things stand in IR-2026-55 on April 20 and rewrote both its FAQ and its sample plan document, which now reads $5,250 “adjusted for increases in the cost of living for taxable years after 2026.” The cap starts climbing with inflation next year instead of dying.

Here’s what nobody in HR volunteers: the tuition side doesn’t have to be job-related. The IRS sample plan says so in plain words. “Education is not limited to courses that are job-related or part of a degree program.” And the IRS says it doesn’t matter when you took the loan out, so a balance from 2014 qualifies the same as one from last fall.

Now the math, because $5,250 tax-free is not the same as a $5,250 raise.

That money is excluded from your gross income. To make the same $5,250 loan payment out of your own paycheck at a 22 percent federal marginal rate, you’d need to earn about $6,730 first and hand $1,480 of it to the IRS. Same dent in your loan, roughly $1,480 cheaper to you.

So why isn’t everyone taking it? Because most employers don’t offer it. SHRM surveyed 5,472 organizations this year and found company-provided student loan repayment at 10 percent, up from 8. The average tuition-or-loan maximum was $5,546, so the shops that do offer it tend to sit right about at the federal ceiling.

Ask two questions this week, while the enrollment window is open.

First: do we have a written section 127 educational assistance plan, and does it cover loan payments or only tuition? A section 127 program has to exist in writing and can’t be tilted toward the highly paid, so the honest answer is a document. Ask for the document.

Second, if it covers tuition only: what would it take to add the loan clause? That’s usually an amendment to a plan the company already has, not a new benefit line. The IRS publishes the sample plan language for free.

If the answer is no on both, you now know the size of what you’re not getting. Run your balance through our loan calculator at $5,250 a year of extra principal and see how many months come off. Then decide how hard to push.

More on federal loan mechanics in the education hub and the financial aid guide. If you’re on autopay, the 1 percent rate cut stacks on top of all this.

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