State lawmakers on Tuesday proposed a tax break that they said could alleviate crushing levels of student loan debt, while solving problems for businesses finding and retaining employees in a competitive job market .
Representative Kate Lipper-Garabedian told the Joint Committee on Income that her bill would “establish a tax exemption for Massachusetts employers who help their employees pay off student loan debt,” with an annual exemption capped at 2,000 $ per employee.
The Melrose Democrat said she sent the committee detailed written testimony detailing “the often crippling effect of student debt on an individual’s financial well-being.”
Student loan debt in the United States has already been identified as the next major financial bubble to burst. It only follows mortgages as the main drag on household finances.
According to the Student Borrower Protection Center, in 2020 there were 871,600 student borrowers who were in debt by around $ 36 billion.
Seven in ten recent college graduates owe an average of $ 37,172, of which about 65% of this debt is incurred by those under 40.
More worrying still, according to the Federal Reserve, the student debt carried by the 40 years and over averages about $ 34,000.
And it will only get worse. The Congressional Budget Office estimates that $ 1.27 trillion in new federal student loans will be added over the next few years.
Locally, one need only look at the burden borne by the graduates of our flagship public university. According to UMass Amherst’s own figures, 68% of his class of 2018 walked away with an average debt of over $ 31,000.
Democratic Senator Lowell Ed Kennedy, who introduced a complementary bill in the Senate, said on Tuesday that the legislation would have a “relatively modest cost” to the state, with the Revenue Department estimating that the change in tax policy would cost between 1 , $ 8 million. and $ 6.7 million per year.
Kennedy said companies in Massachusetts “have been slow to adopt student loan repayment programs” on their own.
This matches the national trend with only 4% of companies offering this advantage.
At the federal level, Congress has launched its own employer-assisted debt repayment plan, combined with tax protections for employees.
The Consolidated Appropriations Act of 2021, enacted in December 2020, extends for five years the COVID-19 relief which allows the repayment of the student loan provided by the employer as a non-taxable benefit to employees under section 127 of the Internal Revenue Code.
Until 2025, employers can contribute up to $ 5,250 per employee per year to eligible education expenses, including tuition or student loan assistance, without increasing an employee’s gross taxable income. .
Our state lawmakers’ proposals call for an employer-friendly $ 2,000 per worker tax exemption – a benefit absent from federal debt assistance legislation – that may prompt Massachusetts businesses to participate in debt reduction. employee student debt.
This legislation makes good sense and makes good sense for everyone involved.
An employer repayment of $ 2,000 of an employee’s college debt should help companies attract the type of worker they are looking for, especially at a time when highly skilled positions cannot be filled.
This $ 2,000 incentive could be viewed by job seekers as a signing bonus, which, combined with any loan repayments they make, would dramatically reduce the time it takes to pay off that college debt.
Otherwise, workers could be forced to postpone their own retirement because of this unpaid loan.
For potential employees, the trick now is to find a company that participates in both federal and state loan repayment programs.