The tax-favorable benefit under Section 127 of the Internal Revenue Service (IRC) allows employers to offer educational assistance to employees—traditionally covering tuition, fees, books and supplies—on a tax-free basis.
Major Update for 2025
Under current law, employer payments toward an employee’s qualified student loan (principal or interest) are also eligible under Section 127—but only for payments made before December 31, 2025. Payments after that date will no longer qualify unless new legislation extends the timeframe. IRS Section 127 changes 2025
In other words: if an employer wants to reimburse student-loan payments tax-free under Section 127, those payments must be made by the end of 2025 under the existing law.
Key Details at a Glance
The annual exclusion limit remains $5,250 total per employee for all Section 127 benefits (including tuition assistance and student-loan repayments) in a calendar year.
The benefit applies only if the employer’s program meets the Section 127 requirements: written plan, non-discrimination, notice to employees, and that employees do not receive a cash alternative.
The student-loan payments must be for a loan “incurred by the employee for the education of the employee” (not for a spouse or dependent) and must qualify as a “qualified education loan” under Section 221(d)(1).
Implications & Action Items
For employers: If you offer a Section 127 educational assistance program and include student-loan repayment, you must ensure reimbursements meant to qualify are made by December 31, 2025 (unless Congress acts). Also you should review your plan document and consider whether an amendment is needed to include student-loan repayment.
For employees: If you expect your employer to pay or reimburse your student-loan payments tax-free under Section 127, make sure that (1) your employer has a qualifying plan, (2) the benefit is part of that plan by the end of 2025, and (3) the total of your tuition assistance + student-loan assistance doesn’t exceed $5,250 in that calendar year. After 2025, this option may no longer be available under current law.
What’s Next?
Legislative proposals are already in play to extend or make permanent the ability to cover student-loan repayments under Section 127. Employers and employees alike should monitor updates from IRS and Congress because any change could impact the value of this benefit beyond 2025.
Bottom line
If you want to take advantage of tax-free student loan assistance via Section 127, act before the end of 2025 under the current law. After that, unless extended, the student-loan-repayment option under the educational assistance plan may expire — but the core Section 127 benefit for tuition and books remains intact.
For more info, visit here:- Section 127 EAP documents