Employer Student Loan Repayment Calculator
The benefit, your tax rates, and the loan it pays down
Your result will appear here
Fill in the fields on the left and this updates as you type.
Know what this estimate is based on
- Jurisdiction
- General mathematical model
- Scope and limitations
- Educational estimate only. Confirm the assumptions, current rules, fees, and rounding that apply to your situation before making a decision.
- Source links checked
- Jul 30, 2026
Built and regression-tested by Smart Tools Lab. It has not been individually reviewed by a licensed financial, tax, or legal professional.
How to use
- 01
Enter what your employer would put towards the loan in a year. If the benefit is quoted monthly, multiply it by twelve first.
- 02
Enter your marginal federal rate and your state rate, and leave the FICA rate at 7.65% unless you know yours differs. Those three together are what the same money would lose if it were paid to you as salary instead.
- 03
Set the years the benefit would run. Many employers cap the benefit by year or by a lifetime total, so use what your plan document actually promises rather than assuming it continues indefinitely.
- 04
Enter the loan balance and rate. The page assumes you keep making the standard payment for a balance of that size and puts the employer's money on top as extra principal.
- 05
Read the yearly advantage and the payoff effect, then check the ceiling in the advanced panel — $5,250 a year, with anything above it treated as ordinary wages.
Formula
The benefit is split at the statutory ceiling, because only the part below it escapes tax: Excluded = the smaller of (employer payment, $5,250) Excess = employer payment − Excluded What reaches the loan = Excluded + Excess × (1 − combined rate) The same gross amount paid as salary is taxed in full first: As salary = employer payment × (1 − combined rate) where the combined rate is federal + state + FICA. The advantage is the gap between them, which is simply the tax that never happens on the excluded part: Advantage a year = What reaches the loan − As salary On the loan itself the benefit is treated as extra principal on top of an ordinary standard-plan payment: Base payment = the level payment clearing the balance over the standard-plan term for its size While the benefit runs: payment = Base payment + (What reaches the loan ÷ 12) After it ends: payment returns to Base payment The interest saved and the months saved are the difference between running the loan with and without that extra principal.
Example
Take a $3,000 a year benefit against a $32,000 balance at 6.52%, with a 22% federal rate, a 5% state rate and 7.65% FICA, running for four years. The whole $3,000 sits inside the $5,250 ceiling, so all of it reaches the loan; the same $3,000 paid as salary would be taxed at the combined 34.65% and leave $1,961. The benefit is therefore $1,040 a year better, or $4,158 over the four years, and $12,000 of employer money reaches the loan in total. To match it with pay, your employer would have to hand over $4,591 of salary a year. On the loan the page assumes you keep paying $279 a month — the level payment clearing $32,000 over the 15 years the standard plan gives this balance — and adds the benefit on top. That takes the interest from $18,239 to $7,864, a saving of $10,376, and clears the loan in 100 months instead of 180, which is 80 months early. The schedule shows the gap widening from $3,091 after one year to $13,668 after four, and the balance reaching zero in year nine while the untouched loan still owes $16,594. Two alternates were run. At $6,000 a year the ceiling bites: $5,250 is excluded and $750 is taxed as wages, so $5,740 reaches the loan against $3,921 as salary, an advantage of $1,819 a year, saving $13,787 of interest and 131 months. Running the original $3,000 for ten years instead of four is worth $10,395 in total and saves $11,337 of interest.
Definitions
- Section 127 educational assistance
- An employer programme that may provide up to $5,250 a year of education benefits tax free. Since 2020 the definition includes payments of principal or interest on a qualified education loan.
- The $5,250 ceiling
- The yearly exclusion limit. Made permanent by Public Law 119-21 §70412, which also indexed it for inflation for taxable years beginning after 2026, rounded to the nearest $50.
- No double benefit
- The rule in IRS Publication 970 that interest paid by your employer under an educational assistance programme cannot also be deducted by you as student loan interest.
- Combined rate
- Federal income tax, state income tax and FICA added together — what a dollar of ordinary salary loses before it can reach a loan. It is the measure the §127 exclusion is worth against.
- Standard plan term
- The repayment period set by the size of the balance when repayment starts: 10 years under $25,000, 15 under $50,000, 20 under $100,000 and 25 above that. The page uses it to derive the payment you would be making anyway.
Good to know
A benefit that became permanent when almost nobody noticed
Employer-provided educational assistance under §127 of the tax code is an old idea: an employer may provide a certain amount of education benefit each year without it appearing in the employee's income. What changed recently, and what made it interesting to people with student loans, was the extension of that definition to cover loan repayment. Since payments made after 27 March 2020 an employer has been able to pay principal or interest on a qualified education loan and have it treated as excludable educational assistance. That extension was temporary and repeatedly short-dated, which made it hard for employers to build a benefit around — a programme that may vanish at the end of a calendar year is a difficult thing to promise. Section 70412 of Public Law 119-21 fixed that directly and quietly. It amended §127(c)(1)(B) by striking the words in the case of payments made before January 1, 2026, which is the entire mechanism by which the loan repayment benefit was made permanent. The same section added a new subsection §127(d), which for taxable years beginning after 2026 increases both of the $5,250 amounts by a cost-of-living adjustment, with any increase rounded to the nearest $50. The effective date for the permanence is payments made after 31 December 2025. Two things follow for someone weighing a job offer. The benefit is now durable enough to be worth valuing as part of total compensation rather than treating as a windfall that may not recur, and the ceiling is no longer a fixed number — it is a figure that will drift upwards from 2027 onward, which is why this page keeps it in an editable field rather than hard-coding it. Anything paid above the ceiling in a year is not disallowed; it is simply ordinary wages, generally included in box 1 of the W-2 and taxed like any other pay.
Why a dollar of benefit beats a dollar of salary
The whole value of this benefit rests on a single fact: it never becomes income, so it never gets taxed. A dollar of salary has to survive federal income tax, state income tax and the employee's share of Social Security and Medicare before any of it can reach a loan. A dollar of §127 assistance reaches the loan whole. On the page's example, with a 22% federal rate, a 5% state rate and the standard 7.65% FICA rate, the combined burden is 34.65%, so a $3,000 benefit reaches the loan intact while $3,000 of extra salary would leave only $1,961 to put against it. The gap is $1,040 a year, or $4,158 across the four years the benefit runs, and it is worth being precise about what that gap is: it is not a return on an investment and involves no risk or cleverness, it is simply tax that does not happen. The most useful way to express it in a negotiation is to invert it. To leave an employee with the same money after tax as a $3,000 loan payment, an employer would have to offer a raise of $4,591 — which is what the page's salary-equivalent figure shows. That framing matters because employees routinely undervalue the benefit against a headline salary number, and because it makes clear what is being given up if a benefit is declined in favour of cash. The FICA component is worth a note of its own, since it is the part people forget. Unlike many pre-tax arrangements that only avoid income tax, a §127 benefit is outside wages for employment tax purposes too, which is where roughly a fifth of the advantage on the example comes from. Above the ceiling the arithmetic reverts entirely: in the alternate run at $6,000 a year, $5,250 is excluded and the remaining $750 is taxed as ordinary wages, so $5,740 reaches the loan against $3,921 as salary — an advantage of $1,819 rather than double the $1,040.
The interest deduction you may be giving up
There is one genuine offset to all of this, and it is the kind of detail that only turns up when a return is being prepared. IRS Publication 970 states the rule under the heading No Double Benefit Allowed: you cannot deduct as interest on a student loan any interest paid by your employer after 27 March 2020 under an educational assistance programme. The logic is consistent with how the tax code treats every other pairing of benefits — the same dollar is not allowed to produce two tax advantages — but the practical effect catches people who were comfortably claiming the student loan interest deduction before the benefit started. The size of the loss depends on how much of the employer's payment is applied to interest rather than principal, and on whether the borrower was getting the full deduction in the first place. For someone who was claiming the maximum $2,500 deduction, losing it entirely would cost $550 a year at a 22% federal rate. Set against the $1,040 a year the exclusion is worth on the page's example, the benefit still wins comfortably, and the loss is smaller in practice because it bites only on the interest portion. It is also worth remembering that many borrowers cannot claim the deduction at all: it is unavailable to anyone filing married filing separately, unavailable to anyone claimed as a dependent, and fully phased out at $100,000 of modified adjusted gross income for a single filer in 2026. For those borrowers there is nothing to give up. The other offset is geographic and less widely known. States are not obliged to follow a federal exclusion, and the one state treatment readable while this page was built demonstrates it precisely: Indiana's Income Tax Information Bulletin #119 requires an employee to add back employer student loan payments excluded federally under §127(c)(1)(B), and says the addback applies whether the employer pays the employee or pays the lender directly. Set the state rate on the page to match your own state, and check with your state revenue department if you are unsure.
What the money does to the loan itself
Beyond the tax arithmetic, the benefit does ordinary and useful work on the balance, and the effect is larger than the yearly figure suggests because every dollar arrives as extra principal on a loan that is already being paid. The page assumes you keep making the payment you would have made anyway — the level payment that clears the balance over the term the standard plan gives a loan of that size — and adds the employer's money on top. On the example, $32,000 at 6.52% falls under the fifteen-year tier, giving a base payment of $279 a month, and a $3,000 a year benefit adds $250 a month of pure principal reduction on top of it. The result is that total interest falls from $18,239 to $7,864, a saving of $10,376, and the loan clears in 100 months instead of 180 — eighty months, or nearly seven years, earlier. The schedule shows the two balances separating steadily: $3,091 apart after one year, $13,668 apart after four when the benefit ends, and the assisted balance reaching zero in year nine while the untouched loan still owes $16,594. Notice that the gap keeps widening after the benefit stops, because the interest that would have accrued on the principal already removed never arrives. That is the compounding argument for taking this kind of benefit early in a loan's life rather than late. Duration matters as much as size. Running the same $3,000 benefit for ten years rather than four raises the total advantage from $4,158 to $10,395 and saves $11,337 of interest, taking 106 months off the payoff. Since many employers cap the benefit by year or by a lifetime total, the term in a plan document is worth reading as carefully as the annual figure. One final caution applies to everything on this page: the figures here are estimates built from the rates and balances you type, and your plan document, your servicer and a return preparer settle what actually happens.
Frequently asked questions
Is employer student loan repayment taxable?
Not up to $5,250 a year. Section 127 lets an employer provide educational assistance without it appearing in your income, and since 2020 that has included principal or interest on a qualified education loan. Anything above the ceiling is generally ordinary wages, reported in box 1 of your W-2. On the page's example a $3,000 benefit sits entirely inside the ceiling, so the whole $3,000 reaches the loan. Rerunning it at $6,000 excludes $5,250 and taxes the remaining $750, so only $5,740 of the $6,000 survives.
How much better is this than a raise of the same size?
On the example, $1,040 a year better. The $3,000 benefit reaches the loan whole, while $3,000 of extra salary taxed at 22% federal, 5% state and 7.65% FICA — 34.65% together — would leave only $1,961 to put against the loan. Over the four years the benefit runs that is $4,158. Turned round, your employer would have to offer a raise of $4,591 a year to leave you with the same money after tax as a $3,000 loan payment does.
Is the $5,250 limit permanent now?
Yes, and it is about to start moving. The student loan part of §127 was written to lapse after 2025, but section 70412 of Public Law 119-21 struck the expiry date and made it permanent. The same section added a new §127(d) indexing both $5,250 amounts for inflation for taxable years beginning after 2026, with increases rounded to the nearest $50. So the figure in the advanced panel is the 2026 one, and it is worth revisiting each year rather than treating as fixed forever.
Does the benefit stop me deducting my student loan interest?
To the extent it pays the interest, yes. IRS Publication 970 states it under the heading No Double Benefit Allowed: you cannot deduct as interest on a student loan any interest paid by your employer under an educational assistance programme. For someone who was claiming the full $2,500 deduction, losing it costs $550 a year at a 22% federal rate — real, but much smaller than the $1,040 the exclusion is worth on the example, and it only bites on the interest portion of what the employer pays. The sibling deduction page prices what you would have had.
What does it do to my payoff date?
On the example it clears the loan 80 months early. The page assumes you keep paying $279 a month, which is the level payment that clears $32,000 at 6.52% over the 15 years the standard plan gives a balance of that size, and adds the employer's money as extra principal while it runs. That takes $10,376 of interest off the loan — $7,864 instead of $18,239 — and finishes it in 100 months instead of 180. Running the benefit for ten years rather than four saves $11,337 of interest and 106 months.
Does my state tax it even though the federal government does not?
Some do. Not every state follows the federal exclusion, and the one state treatment that could be read at source while this page was built shows how it goes wrong: Indiana's Income Tax Information Bulletin #119 requires an employee to add back employer student loan payments excluded federally under §127(c)(1)(B), whether the employer pays the employee or the lender directly. So the benefit is taxed by that state even though it is untaxed federally. Set the state rate here to whatever your own state charges, and check your state revenue department if you are not sure.