Much has been written about the provisions of the CARES Act that support student borrowers. In particular, the disposition Allowing student loan borrowers to withhold payments and interest on their student debt for nearly 6 months is recognized as an effective way to free up much-needed cash during this time of economic uncertainty.

What has been largely overlooked is a part of the CARES Act that allows employers to make tax-free contributions directly to employee student loans. This allows employers to help their employees pay off student debt faster and save a significant amount of student loan interest over time. This characteristic was included in the stimulus package as a form of temporary legislation that this readership is probably familiar with: the Employers’ Reimbursement Participation Act, also known as EPRA.

Related: Student loans still worrying borrowers amid coronavirus crisis

Why is it relevant now and how is it helping those who need it most?

Understanding its current relevance and importance requires a brief historical context. In 1978, a law was passed allowing businesses to pay for employees to return to school and continue their education, tax-free. This was done through Section 127 of the Internal Revenue Code and is generally referred to as “tuition reimbursement”. If this aid were taxable, those who could not pay the additional income tax would be forced to opt out, so Congress made it tax exempt. The reasoning was captured in the explanation of Congress on the adoption of the law:

“The tax law required direct payments of taxes for employer-provided education assistance to those least able to pay, even if they only receive services, not increased wages.”

Since 1978, a lot has changed. The cost of college tuition increased by 1120%. The number of companies increasing their education requirements for jobs jumped 68%. Therefore, 7 out of 10 people in the labor market have taken out student loans to cover the cost of studying for a career opportunity.

Yet section 127 had not changed to reflect this new reality. Employers could still only reimburse employees tax-free for education costs currently incurred. In other words, if employees took it upon themselves to get the education required to get a job – and in so doing, took out student loans – then they were the only ones paying them back.

This is why more than 55% of all members of Congress (over 300 in total), from both houses and both parties, have co-sponsored EPRA. This bill would update the tax provision in section 127 to include the repayment of student loans as a qualifying form of educational assistance. Outside of Congress, a large group of constituents, from the Society of Human Resource Management (SHRM), to the Association of Young Americans (AYA), to the American Chamber of Commerce, also supported the bill.

Before this benefit was recently exempt from tax, approximately 8% of employers chose to offer student loan repayment as a benefit. Many of them are our customers. I have had the privilege of sharing the news with them over the past few weeks that this benefit is now tax free – for them and their employees. This means they no longer need to withhold income tax for employees enrolled in the student loan repayment program, and their employees will see their take home pay increase.

Instead of an employer sponsored student loan payment of $ 100 per month costing the employee $ 30 per month, it is now free for employees to participate. This can have significant implications for those who are struggling to make ends meet month after month. For reference, the additional $ 30 / month of relief is equivalent to $ 360 for the entire year – that’s about a third of the amount of the federal stimulus going on for many Americans right now.

Some believe that this benefit disproportionately helps those who “don’t need the help” or those who have degrees and are able to pay their student loan repayments on their own. This argument – that if you have a degree, you are not in financial difficulty because of your student debt – has been refuted in several studies. People with student loans postpone important life stages like owning a home, getting married and saving for retirement.

Plus, student loans aren’t just for university graduates. In fact, a disproportionate number of those who would benefit most from an employer contribution to the repayment of student loans are individuals. who did not graduate, but still walked away with student loans. Many of these people work in high turnover industries, such as hotels, restaurants and retail. The impact of a monthly student loan repayment in these roles is incredibly high. Among our clientele, we have a wide range of businesses offering student loan assistance, from retail businesses to non-profit organizations to technology companies. Based on our data, the assumption that this advantage only benefits the wealthy is simply not correct.

The expansion of eligibility for the Section 127 tax exemption offers significant support and relief for those on student loans and gives businesses a new tax-free benefit to attract and retain top talent. While some companies may not be able to introduce this benefit now, others are. Making student loan repayments a tax-free benefit will increase the take-home pay of participating employees and provide more incentive for employers to introduce such programs. It’s good for business and student loan borrowers.

Tara Fung is commercial director at CommonBond, where focuses on providing educational benefits to employers.

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