Research & Commentary: Extending Employer-Provided Education Assistance to Student Loans Is a Win-Win

Published April 5, 2017

A proposal introduced by U.S. Rep. Rodney Davis (R-IL) aims to address skyrocketing student loan debt by amending the tax code “to extend the exclusion for employer-provided education assistance to employer payments of qualified education loans.”

Extending the Employer-Provided Educational Assistance Program would allow employers to provide “tax-free educational assistance benefits [including] … tuition, fees and similar expenses, books, supplies, and equipment” to qualified student loan programs. Through this program, taxpayers can deduct $5,250 per year of educational expenses.

Introduced in 1986, the tax-free education assistance program has proven effective, benefiting employees as well as employers. Employers are able to use this powerful incentive to attract future employees, and research shows the program creates benefits for companies. An analysis by the Lumina Foundation – a private higher-education foundation based in Indianapolis, Indiana – examined the return of investment gained from Cigna’s Education Reimbursement Program and found that “every dollar the company puts into the program is returned and generates an additional $1.29 in savings – a 129 percent return on investment.” Cigna is one of the nation’s largest health insurers.

According to the personal finance website Make Lemonade, student loan debt in the United States is “now the second highest consumer debt category – behind only mortgage debt.” According to the New York Federal Reserve, in the fourth quarter of 2016, student loan debt totaled $1.31 trillion, and there were 44.2 million American borrowers. Student loan debt increased $31 billion in the fourth quarter alone.

Student loan debt impacts more than just those who take on the balance; a trickle-down effect has ensued in recent years. A 2016 study by the National Association of Realtors and the nonprofit American Student Assistance polled persons with current debt repayments and found, “Nearly three-quarters of non-homeowners … believe their student loan debt is delaying them from buying a home.” A staff report by the Federal Reserve Bank of New York found the presence of a high student loan balance “both significantly increases the rate at which independent young people transition to living with their parents and significantly slows the rate at which dependent youth transition away from their parents.”

Davis’ legislation is a step in the right direction, according to, an American company providing assistance to companies that pay student loans as one of their employee benefits. CEO Scott Thompson praises the proposed legislation, saying it could entice more employers to offers such benefits. “Now is the time for the most forward-thinking benefits managers to get up to speed on student loan repayment assistance and firms that help implement and manage student loan assistance programs,” Thompson said.

Policymakers should embrace free-market strategies when addressing student loan debt in the United States. Employer-provided education assistance can help lessen the costs of government aid and help to offset the costs of rising tuition. More importantly, such policies do not burden taxpayers; they allow companies to help pay off student loan debt using free-market principles.

The following documents provide additional information about college education reforms.

Ten Principles of Higher Education Reform
In this Heartland Institute Legislative Principles booklet, Richard Vedder and Matthew Denhart explain why higher education costs are increasing rapidly while student learning outcomes steadily decline. The authors identify the reforms states should take to jump-start higher education, which is notoriously resistant to change. 

At College of the Ozarks, Students Work Off Tuition Debt
Jane S. Shaw, higher education editor for The Heartland Institute’s School Reform News, examines the College of the Ozarks in Point Lookout, Missouri. At College of the Ozarks, students receive federal and state education aid and work to pay some of their tuition, but they are not allowed to take out federal student loans.

Research & Commentary: Cuomo’s ‘Free’ Tuition Plan Won’t Help Poor Students or Reduce College Costs–commentary-cuomos-free-tuition-plan-wont-help-poor-students-or-reduce-college-costs
In this Research & Commentary, Heartland Institute Policy Analyst Tim Benson argues against New York Gov. Andrew Cuomo’s proposed plan to provide “free” tuition at public colleges and universities in the state. Benson points out that rather than assisting low-income students, Cuomo’s plan would create a “welfare program for upper-middle-income households.”

Student Loan Programs Will Cost Taxpayers at Least $108 Billion
In this article, Jane S. Shaw, higher education editor for The Heartland Institute’s School Reform News, examines the 2016 U.S. Government Accountability Office report “Education Needs to Improve It’s Income-Driven Repayment Plan Budget Estimates,” which examines the cost of income-driven repayment plans and loan forgiveness programs.

Issues 2016: Is There a Student Debt Crisis?
Max Eden, senior fellow at the Manhattan Institute, examines student loan debt, finding a significant difference of debt burden between students who graduated from four-year universities and students who did not graduate from for-profit or two-year public institutions.    

Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs
This July 2015 report from the Federal Reserve Bank of New York argues the sharp increase in funding federal student aid programs have received since 2000 are primarily to blame for the skyrocketing tuition rates imposed by many public and private college institutions across the country.

Accounting for the Rise in College Tuition
This study by Grey Gordon of Indiana University and Aaron Hedlund of the University of Missouri argues funding increases for federal student loan programs “account for the lion’s share of the higher tuition” rates occurring between 1987 and 2010. Further, “[T]he tuition response completely crowds out any additional enrollment that the financial aid expansion would otherwise induce, resulting instead in an enrollment decline from 33% to 27% in the new equilibrium with only demand shocks.”


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit School Reform News at, The Heartland Institute’s website at, and PolicyBot, Heartland’s free online research database, at


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