/New IRS Rule Can Help You Pay Your Student Loans

New IRS Rule Can Help You Pay Your Student Loans

A new IRS ruling just made it easier to pay student loans. With the help of your employer, you might be able to use pre-tax dollars to pay down your debt.

Marketwatch explains: On Aug. 17, the Internal Revenue Service released a private letter ruling that could make it easier for employers to use their 401(k) plans to assist their employees who are repaying student loan debt.

Over the last decade, student loan debt has nearly tripled in real terms and, today, Americans hold $1.4 trillion in student debt. Employees are looking for assistance in repaying their student loans, and companies have been searching for ways to tackle the problem.

The recently issued ruling affirmed that, under certain circumstances, an employer can link the amount of its 401(k) matching contributions for an employee to the amount of student loan repayments made by the employee outside of the plan.

Participation is voluntary, but a participating employee is eligible to receive nonelective contributions based on his repayments equivalent to what he would have otherwise received if he had made contributions to the plan. If the employee fails to make full use of the employer match based on student loan repayments, the excess match would be applied to any contributions made to the plan. The student loan repayment benefit is subject to nondiscrimination testing, contribution limits, and other requirements for a qualified plan.

You might have to talk your employer into participating, but the potential payoff can be huge for debt-strapped graduates.