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Agency Student Loan Repayment Plans

U.S. Office of Personnel Management

Under 5 CFR 537.103, each agency must establish a plan that designates the officials who are authorized to review and approve offers of student loan repayment benefits. Agencies should use approval delegations similar to those used for other recruitment and retention incentives.

Agency Tailoring

Agencies may tailor their student loan repayment plan as they see fit in order to facilitate the recruitment and retention of highly qualified personnel.

Procedures for Making Payments

Agencies are not required to make loan payments in one lump sum. In fact, making a loan payment in one lump sum to the loan holder on behalf of the employee accelerates the employee’s tax liability and may increase the resulting tax burden.

Agencies are not responsible for late fees assessed by the holder of a candidate’s or employee’s student loan. Agencies should state this in their agency plans and/or in the service agreements with employees. Agencies should, to the extent possible, ensure that the timing of their payment to the loan holder coincides with the date the loan payment is due.

Student loan payments are not subject to the aggregate limitation under 5 U.S.C. 5307. The aggregate limitation on pay applies to direct payments made to the employee, whereas student loan payments are paid to the loan holder on behalf of the employee.

Are Payments Subject to Employment Taxes?

Although a student loan payment is paid directly to the loan holder on behalf of the employee, the payment is nonetheless includible in the employee’s gross income and wages for Federal employment tax purposes. Consequently, the agency must withhold and pay employment taxes from either the employee’s regular wages, the loan payment, or a separate payment made by the employee. The applicable employment taxes include Federal income taxes withheld from wages (and, where appropriate, State and local income taxes) and the employee’s share of social security and Medicare taxes. Tax withholdings must be deducted or applied at the time any loan payment is made.

The agency may choose among several different methods for withholding taxes. Please note the implications of deducting taxes directly from a gross loan payment. For example, if the agency has approved a student loan repayment benefit of $10,000 and the employee’s tax deductions are $3,000, then the agency will make a loan payment of $7,000. The full $10,000 counts toward the maximum limitations.

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