Federal and private student loans qualify for tax-free contributions under a section 127 Student Loan Repayment plan so long as the loan was taken out for the employee’s own college tuition and related expenses. These loan types include:
- Direct Subsidized, Unsubsidized, Consolidation, and Grad Plus loans
- Stafford Subsidized, Unsubsidized, Consolidation, and Plus loans
- Perkins Loans
- Private Student Loans
Unfortunately, other loans do not qualify for participation in 127 plans. These loan types include:
- Direct Parent Plus loans that were taken out for the benefit of a dependent (i.e., not the employee)
- Private parent loans that were taken out for the benefit of a dependent (i.e., not the employee)
- Student loans guaranteed or serviced by non-U.S. entities
- Co-signed loans, or any other loan where the employee is not the primary borrower on the loan
- Any non-student loan such as a personal loan, home equity loan, credit card, or other revolving debt facilities
- Defaulted loans that have been turned over to a collection agency
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