Episode 187- How to Get Your Employer to Pay $5,250 Towards Your Student Loans Before the End of 2020- Bonus/Emergency Episode

Jamila Souffrant 0:01

Okay, journeyers I have a special treat. I have back on the podcast Lynnette Khalfani-Cox. Lynnette came on the podcast to talk all about the Cares Act and what we should know about the economic stimulus package when it was passed. I have to bring up that episode for you guys. And I'll put in the show notes here. But why I'm really excited. Lynette is here is because Lynette, you made a post recently that went viral. It went totally viral, I reposted it. And we're gonna talk about what that post is. And that's like, you know what I feel like, I have to, like, do something like digital content on this. So everyone, especially journeyers know that this is a thing and that they need to hop on it before the end of the year. So you made a post, all about student loans. And you know, student loans is a hot topic right now, and impacts everyone. But I feel like nowadays, it's getting so much more just attention. And you said and I guess I should let you say it. Well, you talked about something amazing that some people don't know that they can get their student loans paid for by the employer. So I let you I don't want to like steal thunder. You tell us what you wrote that went so viral?

Lynnette Khalfani- Cox 1:06

So the gist of what I wrote is to tell people did you know that you can get your employer to make tax free contributions to pay off a big chunk of your student loan debt to the tune of $5,250 before the end of the year before December 31 2020. And that not only is it not taxable income to you, but the employer gets a tax break for their generosity. And so apparently, a lot of people didn't know about this little, you know, provision tucked away in the Cares Act. And yes, it went viral everywhere, on, you know, Twitter, on Facebook, on Instagram, etc. and people started sharing like crazy and like, no, this is not real. This is this is for real. And I'm like, Yes, it's a real thing. I'm not making this up.

Jamila Souffrant 2:05

Well, let me tell you, so I shared it on my Twitter and I'm on Twitter, but not as much, but I shared it on my Instagram. And let me tell you, I think that like if I probably look back, it's probably going to be one of my most commented on posts. Like I'm sure it's gonna be like top 10 of the whole year for my Instagram. And I had over let's see 20 about 20 over 2300 comments. Oh, actually, that's a lie. I had 160 comments some of that was me responding 2300 likes on it. And I say that all to say people were really just like, wait, what is this and how come I did not know about this? So one how's this different from anything that was available before because I know that some employers do pay for like, you know, towards education for their for their employees. How is this different?

Lynnette Khalfani- Cox 2:51

Right. So it's absolutely the case that there's already employer provided things like tuition assistance, an employer can pay for your books, if you're in school, stuff like that, yes, that's already existed. But this is something new and different. It's an expansion of employer provided educational assistance only via the Cares Act. And since Congress passed the cares act, in March on March 27 2020, from that date on through the end of 2020, only. So again, until December 31 2020. Any contributions that the employer makes to pay off your student loans is added to that $5,250 cap. So one of the questions some people asked, or that we got, as well, was women, I'm already getting some to pay off to pay towards tuition or something. Are you telling me this something different? Or can I get my employer to pay both? And the short answer is yes, you can actually get your employer to pay both. Maybe if they want to pay something towards your education. If you're, you know, taking a class or something right now, I'm likely online and given COVID. But the fact is the cap, the overall total is maxed out at $5,250 in terms of getting educational assistance from your employer. And so some people were like, what happens if if it's more than that? You know, though, what happens if they pay more than that is that that amount in excess of $5,250 for educational assistance, will be included as wages. So it'll be in box, one of your W2 form that you get, and you will have to pay taxes on that money. So but anything up to that? $5,250 Yeah, you get it tax free.

Jamila Souffrant 4:18

Yes, yes.

Lynnette Khalfani- Cox 4:19

So it's absolutely the case that there's already employer provided things like tuition assistance, an employer can pay for your books, if you're in school, stuff like that, yes, that's already existed. But this is something new and different. It's an expansion of employer provided educational assistance only via the Cares Act. And since Congress passed the cares act, in March on March 27 2020, from that date on through the end of 2020, only. So again, until December 31 2020. Any contributions that the employer makes to pay off your student loans is added to that $5,250 cap. So one of the questions some people asked, or that we got, as well, was women, I'm already getting some to pay off to pay towards tuition or something. Are you telling me this something different? Or can I get my employer to pay both? And the short answer is yes, you can actually get your employer to pay both. Maybe if they want to pay something towards your education. If you're, you know, taking a class or something right now, I'm likely online and given COVID. But the fact is the cap, the overall total is maxed out at $5,250 in terms of getting educational assistance from your employer. And so some people were like, what happens if if it's more than that? You know, though, what happens if they pay more than that is that that amount in excess of $5,250 for educational assistance, will be included as wages. So it'll be in box, one of your W2 form that you get, and you will have to pay taxes on that money. So but anything up to that? $5,250 Yeah, you get it tax free.

Jamila Souffrant 4:49

What's it is amazing, because this is literally if you have existing student loans and your employer has a program already so there are some stipulations that I want to talk to you I got so many questions and You know, we don't have you all day, but I tried to get the most asked questions to ask you here. But one of the things was okay, if I already had student loans, you know, does this count? Can I use this for thing, student loans I got or acquired before I even became the, you know, an employee of this employer.

Lynnette Khalfani- Cox 5:17

Yes. So So what does the employer have to do? This is one of the big questions. So under Section 127 of the Internal Revenue Code, that's where this is all coming from. This is the part that's being expanded, the employer does have to have set up a plan to provide educational assistance to employees, there's also a couple of other things that the employer has to do. So first, if your employer already does have a plan, and many employers do have this, like I said, already, they have to update that plan and include language in it to specifically cover the Cares Act and this expansion to be able to provide assistance in the form of paying off student loans. So that language in their plan would have to be updated. Frankly, it ain't that complicated. It's not terribly complex. But yeah, it's some paperwork that has to be done. Additionally, the employer has to, you know, check off a couple of other boxes. One is they can't discriminate against employees, regardless of whether or not they're highly compensated, etc, they can't discriminate in favor of those highly compensated employees to be exact, they have to advertise or like give notice of the plan to employee, they have to say this exists. And here are the terms under which you can get student loan repayment assistance. So that's what essentially the employer has to do on their end.

Jamila Souffrant 8:22

Right. And so a lot of great questions came up then Okay, how do I even bring this to my employer? I know like so that when I posted this, this was like, What last week you know, we are in December already hoping to get this content out on the podcast and on social media soon, but we really only have like three weeks left to the end of the year. So what are the next steps for someone listening and thinking okay, I think my employer has a plan. I'm not sure how do I what what should I do next to make sure I can get this in. If I can get some of this student loan, you know, forgiven or paid for

Lynnette Khalfani- Cox 8:53

Right. So since the employer must actually make the payment by 11:59pm, on December 31, you got to get on the ball immediately. So what you want to do is first go to your human resources department, and ask an HR or benefits person, they would be the individual most likely to know whether or not your company has an existing Education Assistance Program, you could certainly ask your boss or somebody like that as well. But you know, chances are that the HR or benefits person will be extremely well versed in knowing the perks and benefits that your company or your organization offers. So you want to ask that person, if they don't have it, you can actually ask them if they would consider creating it. Now again, obviously, I'm not gonna say that it's a terribly good chance of them saying, Oh, yeah, we're gonna pull this together real quick. And the next the last three weeks of the year, you know, in the middle of a pandemic and everything else. What I've been hearing from people who have heard a No, I've heard of many people who got it Yes, like, Oh, I'm so happy. Thank you, you know, And their employer said, yeah, we will need to do this, we already have a plan, we'll just update it. And we'll, you know, pay you some money out by December 31. Um the ones that say no, it's typically because they don't already have a plan. And they might feel like, Oh, can we pull this off in time, and it might seem to them to be complicated or cumbersome. There's actually a company that helps organizations to do it, and it can help them to do it quickly. Education Loan Finance, and that was the resource that you referenced that I gave people, their link to their website and their letters, because they even put together a template for employees. And basically, it's like an email script. And it pretty much says something like, Hey, I heard about this benefit, via the Cares Act where an employer can pay off, you know, up to $5,250, an employee's student loans, you know, I have student loans, I would greatly benefit from that. Do we have a program like this? And or would you guys be willing to do this, you know, I'm interested in this, and it would be a great help. To me, that's kind of the gist of what the the letter or the email might say, to an employer. And it's a very, very good start.

Jamila Souffrant 11:14

I will link that letter in the show notes for this and wherever I can so that people can get access to that and like send it right away to their employer. So a couple questions that came up, which I thought were really good, I hope we can like kind of just get answers to if you know them. Is that so this one's a good one. It's like what's in it for the employer? So some people were like, Why would my employer do this for me?

Lynnette Khalfani- Cox 11:34

Okay, the employer did get a tax break. Also, this is a tax free contribution, when they're spending this money to help the employee, in addition to them being able to make tax free contributions, the employer is generating a lot of goodwill, right. So this is a retention tool. This is a hiring tool, frankly, and a lot of employers know that there's a lot of great talent out there. And it's a competitive marketplace. And so they want to keep their employees happy. So they're raising the sort of quotient here, if you will, in terms of having happy, satisfied, you know, motivated, let's say, employees, and they're fostering a lot of goodwill.

Jamila Souffrant 12:18

Make sense. Can these employers also add different stipulations like you have to stay with the company for a certain timeframe and other things that they might like sneak in to make it a little, you know?

Lynnette Khalfani- Cox 12:26

The short answer is yes. And they ain't sneaking it in, because the provisions literally say that they can do that. And in general, what most employers will do is they will include something called a clawback provision. And it basically says, Listen, for you to get this $5,000, you have to agree to still work for us for X amount of time, and many employers will put like, a one year sort of timeframe on it. In other words, they don't want to pay you an extra $5,250. And then in February, you quit and go to another job. So it's not unreasonable. Now, I've heard lawyers on online and other tax specialists talk about this and say, as a practical matter, like if you quit, they can ask you for the money back, if you quit before the term that they say that you need to stay. But the lawyers and the tax people were basically saying, Yeah, but as a practical matter, you know, too many employers, I'm not gonna like go suing people and doing all that. I'm not telling you which way to do it. I think you should, if you, you know, say, Yep, I'm gonna agree to stay for another 12 months, or whatever it is that you, you know, you fulfill your end of the agreement, but I'm just telling you that yes, they do have the right to include that kind of language in these agreements as well.

Jamila Souffrant 13:43

Right. So just make sure you know what comes along with you accepting the payment from them. Okay, so does this apply for a government employee? So a lot of questions came up like I work for the government or you know, I'm in the military. I work for a nonprofit.

Lynnette Khalfani- Cox 13:57

So yes, again, short answer is yes. And I got a lot of these questions as well. And I did not find any limitation. Some people said, Oh, no, this is if you're over 500 employees, or if you're a government or nonprofit this is not, I didn't see anything in there that restricts it, an employer that has this kind of assistance in place, can opt to expand their program and to do it and yes, even for nonprofit and for state employees, for teachers, government workers, etc.

Jamila Souffrant 14:28

Right, Okay. So another one that came up was does this apply to entrepreneurs? So what if you're your own boss, can you find a loophole where you can like, pay yourself and then guess what does that a tax write off for the whole payment

Lynnette Khalfani- Cox 14:39

So somebody asked me this question, and I went to go try to find the answer. And honestly, the answer that I found was like, Oh, yeah, like I'm so I'm, again, I'm not anybody's tax accountant or yours. So I refer this person I right to the IRS website, and their provisions that talked about this. But in a nutshell, I believe that yeah, it is possible for an employee who is say, an S corp owner. An S corp for federal tax purposes is a company that has a partner, perhaps multiple partners, a husband and wife partnership, for example, like my husband and I, we have an LLC, a limited liability company. But for federal income tax purposes, our company is an S corp, it means we get both a salary as employees, we pay ourselves w2 wages, but separately, we get k one or dividend income. So that's a quick and dirty explanation. Well, when I read this, when I reviewed this little part of the IRS guidelines around this, they said who is an employee that could be eligible for this this student loan assistance, and it said, as a sole proprietor, so it was like, oh, okay, that's a self employed person. And it's specifically referenced a partner in a partnership. And again, something like an S corp is a partnership. But there was another little fine print that talked about 5% ownership. So like, if you have more, if you own more than 5%, are you considered an employee or not? And it was a little unclear to me, let's say. So I think that's something that somebody should ask their accountant about, go look at the IRS links that I provided on that and then make your own determination or interpretation. In some ways, though, my answer what I think it is, is I think that it would be possible. But again, you can't discriminate if you have employees, you know, if you're the highest paid person, you know, you have to make sure you obviously follow IRS guidelines.

Jamila Souffrant 16:44

Right so is it that also that all employees will be opened up for this? So if they Okay, so that's the other thing. Yeah.

Lynnette Khalfani- Cox 16:52

Mm hmm. If an employer has to an employer has to announce it, and make it widely known and available to all employees. But frankly, not every employee has student loans. So you know, but the employer actually can put some parameters. So the employer can say like, Okay, if you have to have been working here for six months, or longer, or one year, the employer can put its own sort of, you know, guidelines in place, and that's perfectly legal and acceptable, and within the parameters of this law for them to do.

Jamila Souffrant 17:22

Right or they could say even if you're part time so when the question was like what if I'm part time but it's up to your employer to say that a part time person can get this benefit.

Lynnette Khalfani- Cox 17:29

Correct. But there's nothing in the law itself that prohibits it. There's nothing that says no part time employees are available or can get this benefit. It's only if your employer's language and their plan says that.

Jamila Souffrant 17:43

Right, And then a great question came up why I didn't finish my degree this was like loans from years and years ago, does that still count?

Lynnette Khalfani- Cox 17:49

No, so I didn't see anything in there that reference, somebody asked about grades, like if you get bad grades, or if you didn't finish the degree or anything like that. No, it didn't reference anything like that. Again, if your employer specifically says, Oh, well, if you didn't finish your degree, but you work in there already. So I'm assuming that if you didn't get a degree, but they hired you. So I don't think that that would be too much of an issue. But the law itself this act, this provision within the Cares Act doesn't make that a prohibition at all.

Jamila Souffrant 18:19

Right. Or some people will say, Well, I'm not even using the degree that I went to school for is not like what I'm in like, you know, so that does not preclude you from this which is, which is like, I feel like promising news for like a lot of people. So the last thing I actually want this before we just like do a quick recap and tell everyone where they can find more about you. And the resources that were mentioning is do you think this will be extended into 2021? Because, you know, again, this is like the end of the year that this went viral. And a lot of people found out about this, everyone's kind of scrambling to get it done. And hopefully some people get through after they hear more of this content, but then like, bam, it's going to be the end of the year. So is there any hope for 2021 that this can happen again and it stays in place?

Lynnette Khalfani- Cox 18:58

I'm not at all hopeful that anything in 2020 will change to automatically extend this to 2021. And that's for political reasons. And that's because until after, we won't know until after January 5, who has control of the Senate. So right now, definitely don't count on an expansion or an extension of this, if you think you're eligible. And if you might try to go and get this with your employer do it before December 31. Now after we have the incoming Biden administration after January 20, obviously, Joe Biden's already talked about student loan forgiveness as a whole, maybe $10,000. Could be more could be less, etc. But I do think that we're going to see some additional relief on the student loan front when it comes to what Joe Biden and Kamala Harris will put forth. Exact details to be determined. But I am hopeful that there will be some relief in the not too distant future.

Jamila Souffrant 20:00

Right. I mean, and I'm telling you like this stuff works because even on my post, someone said, Okay, I'm gonna go try this, they came back and said, I sent the email and they said yes. And then so this is possible that it could work. And of course, I had some people say, Well, I asked my employer and they like responded immediately. No, so there will be some.

Lynnette Khalfani- Cox 20:17

I had some people as well. I had a guy on Twitter, he told me nah, fam, they were like nah. And I said, You know what? I'm happy that you went and asked, because they actually said, oh, maybe the email he got back said, Oh, this is interesting. We can't do it right now. But maybe this is something that we should start offering to our employees. So he kind of opened the door to that conversation, and probably they will start to help other people. And you know, if it's not immediate, at least you're planting that seed.

Jamila Souffrant 20:46

Right, exactly. And you know, again, I know there's still some gray area here and you may not know and some other things that we can try to figure out that you're thinking through but it just asked it doesn't hurt to even ask even if you're not sure let them tell you know, or at least put the seed in there. You know, they're there the organization for this to possibly be a possibility for next year. This is something that could help you so Lynnette, please tell everyone where they can find more about you. You gave you give such great information like I'm just like, I know who like to go to whose account to look to for like the legit information. Where can they find more about you?

Lynnette Khalfani- Cox 21:20

So they can hit my free financial advice site at askthemoneycoach.com, we're actually going to be posting as well, a series of FAQs about this topic because it was extremely viral, very popular. And maybe I'll tell them a little little tease a little something, you know, people thought people really went crazy over hearing about getting $5,250 worth of employer provided student loan repayment assistance. Jamila wait till I hear about getting $60,000 worth of student loan help for those federal student loans. So I'll just I'll just leave that little tease right there. But I think that's gonna be my next big one to really explain that as well. Because that is and yes, it's legitimate and No, I wouldn't be saying it if it wasn't something that was actually true and a program that people need to know about anybody who has student loans, federal student loans specifically.

Jamila Souffrant 22:15

Oh, my gosh, so you left us on a cliffhanger. So now everyone you need to go to say that website one more time.

Lynnette Khalfani- Cox 22:20

Askthemoneycoach.com

Jamila Souffrant 22:23

And you're on social on Instagram, Twitter and Facebook.

Lynnette Khalfani- Cox 22:26

LinkedIn, YouTube, everything. Yes. And it's all either @themoneycoach or my full name. Lynette Khalfani- Cox.

Jamila Souffrant 22:35

Right and I will include all that in the episode show notes. I will include the template that Lynette referenced, and I wish you everyone listening to go try this if you have student loans, federal student loans, and I wish you luck report back, tag me if you try this and tell us what happened on you know your social media or send me an email or just I'd love to see the results of how many people we can get like help with this before the end of the year. So thank you so much Lynnette.

Lynnette Khalfani- Cox 23:01

That would be great. You're welcome. Thank you for having me.