Processing, Correcting, or Canceling a Student Loan Repayment

The Federal student loan repayment program permits Agencies to repay Federally insured student loans as a recruitment or retention incentive for new hires or current employees of the Agency. Loans eligible for payment are those made, insured, or guaranteed under parts B, D, or E of Title IV of the Higher Education Act of 1965, or a health education assistance loan made or insured under Part A of Title VII or Part E of Title VIII of the Public Health Service Act.

The student loan is not forgiven, but Agencies may make payments to the loan holder of up to a maximum of $10,000 in a calendar year with a career total of not more than $60,000 for any one employee regardless of employing Agency.

Note: There is a $60,000 lifetime cap on this benefit.

An employee receiving this benefit must sign a service agreement to remain in the service of the paying Agency for a period of at least 3 years. An employee must reimburse the paying Agency for all benefits received if he or she is separated voluntarily or separated involuntarily for misconduct, unacceptable performance, or a negative suitability determination under 5 CFR Part 731. In addition, an employee must maintain an acceptable level of performance to continue to receive repayment benefits.

Establishing the Service Agreement

To document the service agreement in the National Finance Center (NFC) Payroll/Personnel System (PPS) in EmpowHR, Web-based Entry, Processing, Inquiry, and Correction System (EPIC Web) or Front-End System Interface (FESI): Process Document Type 444, Enterprise Human Resources Integration (EHRI) and the Retirement Systems Modernization (RSM) Elements.

To document the service agreement, the following are required:

• The effective date is the beginning of the pay period in which the action is processed.
• The end date of the service obligation is the month, day, and year the service agreement expires.
• The reason for the service agreement is Code 02/Student Loan Repayment.

This information is submitted in the EHRI file to the U.S. Office of Personnel Management (OPM).

Processing the Original Award

To process a student loan repayment award in the NFC PPS:

• In EmpowHR, EPIC Web, or FESI process Nature of Action Code (NOAC) 817/Student Loan Repayment for eligible employees. Each fiscal year, Agencies must submit a NOAC 817 for each employee authorized to receive student loan repayment benefits in that fiscal year.
  • OPM does not require a Legal Authority.
  • The Award Amount is the amount authorized to be paid during that fiscal year, not to exceed $10,000 per calendar year.
  • The effective date is the beginning of the pay period in which the action is being processed.
• In Web-based Special Payroll Processing System (SPPS Web) use transaction code (TC) 56, Student Loan Benefit/EABP Taxable, to process student loan repayments.
  • The following information must be provided to process the request:
    • copy of the signed service agreement
    • copy of the statement from the employee's lending institution verifying the indebted amount as well as the account and electronic funds transfer (EFT) routing numbers
  • Non-taxable and taxable student loan payments must be processed as two separate payments and cannot be combined in one payment.
  • The non-taxable student loan payment cannot exceed $5,250 per year and may be processed any time after March 27, 2020. See Bulletin NFC-24-1722354447 issued September 26, 2024.
  • The student loan payment total of the non-taxable and taxable amounts cannot exceed the $10,000 per calendar year threshold.
  • All payment data pertaining to student loan repayments processed through SPPS Web is provided to Agencies upon request.
• Use Information/Research Inquiry System (IRIS) Program IR122, SF-50B Data Elements, to verify the data on NOAC 817/Student Loan Repayment.
• Use Payroll/Personnel Inquiry System (PINQ) Program PQ032, Payroll Listing, to verify the NFC disbursed payment after the final schedule of the Payroll Processing System (PAYE) executes at the end of the processing pay period.

Tax Withholding

The gross amount of the student loan repayment benefit is recorded as supplemental income to the employee, as well as Federal Insurance Contributions Act (FICA), Medicare, Federal, State, and local income tax deductions. The employment tax withholding due on supplemental wages is calculated under the flat rate method.

• The correct amount of Federal income tax withholdings is calculated by taking a flat 28 percent of the supplemental wages.
• State taxes are calculated based on the employee's current withholdings.
• Social Security tax and Medicare tax withholdings are calculated at the usual rates and are in addition to the 28 percent Federal income tax withholding.

Note: The Coronavirus Aid, Relief and Economic Security (CARES) Act was approved on March 27, 2020. The employer's contributions toward principal or interest on an employee’s qualifying student loan of up to $5,250 per year are tax-free for the employer for payroll purposes and the employee for income tax purposes when these contributions are made any time after March 27, 2020.

The loan repayment is reported as Wages in Box 1 of Form W-2, Wage, and Tax Statement, and as Medicare Wages in Box 5 of Form W-2. The repayment is also reported as Social Security wages in Box 3 of Form W-2.

Delete or Modify a Student Loan Repayment Award in the Current Pay Period

The Agency must process a rollback prior to the processing of PAYE for the current processing pay period to delete the student loan repayment award personnel action and the Document Type 444 from the employee's personnel history. The Agency must also process a rollback to modify the amount of the award payment.

Correcting a Student Loan Repayment Award

Student Loan Repayment awards cannot be corrected. Instead, if the SPPS Web request to pay the award is already established, make the appropriate adjustments to the request and, if necessary, submit an SPPS Web request to establish a debt.

Canceling a Student Loan Repayment Award

Student Loan Repayment awards cannot be canceled. Instead, if the SPPS Web request to pay the award is already established, make the appropriate adjustments to the request to cancel the payment, and, if necessary, submit an SPPS Web request to establish a debt.

Reporting to OPM

Agencies are required to annually report to OPM on their use of the student loan repayment authority. Before March 31 of each year, Agencies must submit their reports for the previous calendar year. The reports must contain:

• The number of employees who received student loan repayments.
• The job classifications of the employees who received student repayment benefits.
• The cost to the Federal Government of providing student loan repayment benefits.

Note: To assist Agencies with reporting, SPPS Web includes a Student Loan Payments report identifying transactions established and processed to repay student loans incurred by employees.