How the federal government and IRS are helping ease the cost of a higher education.

By Andy Fass
Senior Vice President
Wealth Management Branch Manager
HilltopSecurities Inc.

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The COVID-19 outbreak is upending the lives of college students across the nation. As more and more universities shutter their doors and move classes online, students are scrambling to secure housing and make ends meet.

Students who lived on campus housing are struggling to find alternative living arrangements. Students with federally backed work-study positions at universities worry they’ll be out of the jobs and paychecks they depend on to make everyday purchases. And the shelter-in-place orders adopted by many municipalities have strained the service-industry—once a safe harbor for students working their way through college.

COVID-19 containment measures are taking a toll on students who were already struggling to pay for college. However, the federal government and the IRS have recently taken steps to ease the financial burden of a university education. The following are three recent pieces of legislation that can help make college more affordable for students and the parents who often shoulder a lion’s share of tuition, room, and board.

Student Relief through the CARES Act
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The Act is a $2 trillion economic recovery package designed to blunt the economic impact of COVID-19 on businesses, governments, institutions, and individuals.

The legislation allocates approximately $30 billion to the Department of Education and creates the Education Stabilization Fund. The federal government earmarked a portion of these funds to help universities pay for the costs associated with distance learning, as well as provide additional grants to students for housing, food, technology, and health and child care.

The Act also contains specific provisions that provide relief to student loan borrowers and make it easier for universities to continue paying certain student workers. Here are just some of the benefits students can expect:

• Student financial aid relief. The federal government is suspending federal Direct and FFEL student loan payments and waiving interest accrual on covered loans through September 30, 2020, without penalty. Students can also keep any federal grants they received for the spring 2020 semester.

• Continued federal work-study payments. The Act lets higher education institutions continue to pay students in federal work-study programs. Universities can also take unused work-study funds and award them to students in the form of supplemental grants.

• Exclusion from federal grant and loan limits. Federal Direct Pell Grants and Loans come with lifetime limits (the length of time a student can stay in school and still receive aid). If a student has to drop out due to the coronavirus, the federal government will not factor that time into a student’s lifetime limits.

Expense Planning through the SECURE Act
On Dec. 20, 2019, Congress passed the Setting Every Community Up for Retirement Enhancement Act (the SECURE Act), the first major piece of retirement legislation since the passage of the Pension Protection Act in 2006.

The Act largely attempts to help American workers save for retirement. However, it does offer near-term assistance to individuals paying for a college education as well as long-term assistance for students pursuing graduate-level degrees, including:

• 529 plan student loan repayment. A 529 college savings plan can now be used to pay for a wider range of college-related expenses. Prior to the passage of the SECURE Act, 529 plan holders and beneficiaries could only spend up to $10,000 per year on tuition, fees, textbooks, required equipment, special needs services, and in some cases room and board. Now, families can use 529 plan tax distributions to repay up to $10,000 of student loans per lifetime, per beneficiary. The Act also lets families repay up to $10,000 of a sibling’s loans.

• Non-tuition fellowships and stipends as compensation. Graduate-level students who hold fellowships or receive university stipends can now use those payments as the basis for IRA contributions. While this may not help students in the short term, it does let them start saving for retirement as they pursue their graduate or doctoral degree.

Student Loan Repayment with 401(k) Matching Contributions
On August 17, 2018, the Internal Revenue Service (IRS) released a Private Letter Ruling (PLR) enabling a specific employer to leverage their 401(k) plan to help employees make student loan repayments (SLR) via a student loan benefit program (the Program).

Under the Program, if an employee makes a student loan repayment during a pay period equal to two percent of their eligible compensation for the pay period, the employer will make an SLR nonelective contribution as soon as possible after the end of the year equal to five percent of the employee’s eligible compensation for that pay period.

Additional guidelines for the Program include:

• Employers will make a retirement plan contribution for the employee regardless of whether the employee contributes to the plan.
• All employees are eligible for the program but must enroll before the end of the plan year to participate.
• Participating employees cannot receive both regular matching contributions and SLR nonelective contributions.
• Any employee who participates in the program can opt out at any time.
• Plan qualification rules that apply to matching contributions also apply to the SLR non-elective contributions.

PLRs don’t necessarily mean a law has been changed. In fact, Section 6110(k)(3) of the Internal Revenue Code dictates that a PLR cannot be “used or cited as precedent.” Rather, employers can use this PLR as a roadmap to implement a student loan benefit program and seek IRS approval in the future.

Cushioning the Impact of COVID-19
The COVID-19 outbreak has compounded an already difficult situation for students and parents trying to navigate the financial demands of a college education. However, the recent legislation and rulings above help students pursue a college education without worrying about amassing debilitating amounts of student debt. To learn more about the various student relief programs available, find a HilltopSecurities' financial professional near you.

Hilltop Securities Inc. (HTS) is a registered broker-dealer, registered investment adviser, and municipal advisor firm that does not provide tax or legal advice. This material is not intended to replace the advice of a qualified tax professional. Before making any financial commitment, consult with your tax adviser. This information may not be duplicated or redistributed without prior consent of HTS. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 1201 Elm Street, Suite 3500, Dallas, Texas 75270. Member: NYSE/FINRA/SIPC