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October 14, 2024 Politics & Policy

CT to expand employer student loan repayment tax credit; eyed as worker recruitment, retention tool

HBJ PHOTO | STEVE LASCHEVER Gov. Ned Lamont said an expanded student loan repayment tax credit will be an important tool for companies to recruit workers.
By Hanna Snyder Gambini

Connecticut companies will soon have an added incentive to offer student loan repayment benefits to employees.

On Jan. 1, a new law will go into effect that broadens the state’s student loan repayment tax credit for employers. It will allow qualifying companies to earn a tax credit if they make student loan payments on an eligible employee’s behalf to a student loan servicer.

Current law only provides a tax credit to employers that make payments on employee loans issued by the Connecticut Higher Education Supplemental Loan Authority, a quasi-public state agency that offers student loan and refinance programs.

That restriction has limited the program’s use and effectiveness, experts said. In fact, the state Department of Revenue Services said it has had no claims made for the student loan payment tax credit, which was enacted into law in 2019, but didn’t go into effect until 2022.

The revised tax credit or refund, which was approved in the 2024 legislative session at the request of Gov. Ned Lamont, is equal to 50% of the payments made, with a maximum annual credit of $2,625 per employee, according to the law. The overall tax credit program will be capped at $10 million per fiscal year.

Proponents say the expanded tax credit will allow more employers to offer student loan reimbursement benefits at a time when recruiting and retaining employees remains a challenge in a tight labor market.

It also addresses the student loan debt crisis and will give students educated in the state an added incentive to work and live here after they graduate, proponents said.

“Not only does this program reduce a business’s tax liability, but it will also act as a recruitment tool,” Lamont said in support of the expanded tax credit. “Employers who offer student loan repayment assistance programs have an edge in attracting talent in the tight labor market by offering a competitive benefit.”

Department of Economic and Community Development Commissioner Daniel O’Keefe added that “expanding student loan relief programs helps meet the needs of employees who are studying at higher education institutions and working in high-need professions.”

Standing out

Businesses in Connecticut and elsewhere have faced labor shortage issues since the 2020 pandemic. Although it’s eased for some industries, it’s still a lingering problem, especially for manufacturers and hospitals.

The state had 84,000 open jobs at the end of July, according to the Bureau of Labor Statistics.

According to the Connecticut Business & Industry Association’s 2024 “Survey of Connecticut Businesses,” 33% of in-state employers said lack of skilled job applicants was the main factor hampering their growth, while 78% said it is difficult to find and retain workers.

That’s led many companies to rethink their employee benefit offerings. However, only 2% of Connecticut employers surveyed by the CBIA said they offer student loan assistance, while 8% of companies offer tuition reimbursement.

Nationally, about 34% of employers offered student loan repayment assistance in 2023, according to the Employee Benefit Research Institute.

Meantime, May 2023 data from the Education Data Initiative found that 517,000 Connecticut residents, or 14.3% of the state’s population, carry $18.3 billion in student loan debt. The majority of residents with the debt are under the age of 35 — a key population cohort Connecticut is trying to keep in-state.

Chris Davis

Chris Davis, vice president of public policy for the CBIA, said he hopes more employers will take advantage of the expanded tax credit, but there are some restrictions that will limit its use.

The tax credit, for example, can only be applied against the state’s corporation business, insurance companies and healthcare centers taxes. It does not apply to the pass-through entity tax, which is utilized by most small businesses.

That means the tax credit could be most useful to large corporations.

Additionally, employees who qualify must be Connecticut residents who earned their first bachelor’s degree within the last five years and are employed full time — working at least 35 hours per week.

If the tax credit reaches its maximum utilization, meaning it hits the $10 million annual cap, it would benefit nearly 4,000 borrowers, Davis said.

The only downside, Davis said, is the state loses out on that tax revenue.

Patrick McHale

Labor attorney Patrick McHale, a partner at Hartford-based law firm Kainen, Escalera & McHale, said one of the issues with the original tax credit was that it didn’t get enough publicity.

“It was not well-publicized and didn’t get much traction,” McHale said.

McHale said a student loan repayment program is a mutually beneficial perk, allowing employees to pay down debt and companies to distinguish themselves from competitors.

“It will really allow them to stand out,” McHale said.

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