Plain-language definitions covering Section 127 (permanent under OBBBA 2025), SECURE 2.0 §110, and federal loan programs.
56 of 56 terms
The process of paying down a loan over time through scheduled installments of principal and interest. On a standard 10-year federal Direct Loan, each $100 monthly payment in year one applies roughly $40 to principal and $60 to interest; that ratio inverts by year nine.
Related: Principal, Interest, Standard Repayment Plan
Source: studentaid.gov
Not applicable to Section 127. (Often confused with the §129 dependent care benefits 55% average test.) Section 127's nondiscrimination requirement is the eligibility test plus the 5% owner concentration limit.
Related: Nondiscrimination Testing, 5% Owner
Not the correct code — Code S is for SIMPLE retirement plans. Section 127 educational assistance up to $5,250 is not reported on the W-2 because it is excluded from gross income. If an employer provides more than $5,250, the excess is reported as wages in Boxes 1, 3, and 5.
Related: Section 127, W-2, Tax-Free
Source: IRS Publication 15-B (2026)
The process by which unpaid accrued interest is added to the principal balance of a student loan, after which interest accrues on the new larger balance. Capitalization commonly occurs at the end of a deferment or forbearance period, upon leaving an IDR plan, or when a grace period ends on an unsubsidized loan.
Related: Principal, Interest, Amortization
Source: studentaid.gov
Combining multiple federal student loans into a single Direct Consolidation Loan with a weighted-average interest rate rounded up to the nearest one-eighth of one percent. Consolidation can restart the PSLF qualifying-payment count, so borrowers near forgiveness should consult a servicer first.
Related: Direct Loan, PSLF, Refinancing
Source: studentaid.gov
A non-employee paid via Form 1099-NEC. Section 127 plans cover only W-2 employees — independent contractors, board members, and partners in a partnership are not eligible to receive tax-free educational assistance under IRC §127.
Related: Eligible Employee, Section 127
Source: IRC §127(c)(2)
A temporary postponement of federal student loan payments during which interest does not accrue on Subsidized loans but does accrue on Unsubsidized, PLUS, and Grad PLUS loans. Common qualifying conditions include in-school enrollment, unemployment, and active military duty.
Related: Forbearance, Subsidized Loan, Unsubsidized Loan
Source: studentaid.gov
Federal student loans issued by the U.S. Department of Education under the William D. Ford Federal Direct Loan Program. Includes Direct Subsidized, Direct Unsubsidized, Direct PLUS (Parent and Grad), and Direct Consolidation loans. All Direct Loans are eligible for PSLF and IDR plans.
Related: FFEL, Grad PLUS, PSLF
Source: studentaid.gov
Total and Permanent Disability Discharge cancels federal student loan debt for borrowers who are physically or mentally unable to engage in substantial gainful activity. The 2025 OBBBA permanently exempted TPD discharges from federal income taxation.
Related: Forgiveness, OBBBA 2025
Source: disabilitydischarge.com
The U.S. federal agency that enforces ERISA. Section 127 educational assistance plans are not ERISA welfare benefit plans (they are statutory fringe benefits under the IRC), so DOL Form 5500 filings are not required for the educational assistance itself.
Related: ERISA, IRS, Plan Document
Source: 29 CFR §2510.3-1
A written employer plan that provides tuition, fees, books, supplies, equipment, and (through December 31, 2025 under CARES, extended permanently by OBBBA 2025) qualified student loan principal and interest payments — up to $5,250 per employee per calendar year, tax-free to the employee.
Related: Section 127, Plan Document, SLRA
Source: IRC §127
An employee's pre-tax or Roth contribution to a 401(k), 403(b), or 457(b) plan. Under SECURE 2.0 Section 110, employer matching contributions can be made on a participant's qualified student loan payments as if those payments were elective deferrals — effective for plan years after December 31, 2023.
Related: SECURE 2.0, Section 110, QSLP
Source: Pub. L. 117-328 §110
A common-law W-2 employee of the sponsoring employer. Section 127 plans may exclude (or include) classes of employees provided the plan does not discriminate in favor of highly compensated employees or their dependents.
Related: HCE, Nondiscrimination Testing, Contractor
Source: IRC §127(b)(2)
The Employee Retirement Income Security Act of 1974. Section 127 educational assistance programs are statutory fringe benefits and are generally not subject to ERISA's reporting, disclosure, fiduciary, or vesting rules. SECURE 2.0 Section 110 QSLP matches inside a 401(k), however, are ERISA-covered.
Related: DOL, Plan Document, Section 110
Source: 29 U.S.C. §1001 et seq.
A federal loan program that ended on June 30, 2010. FFEL loans were originated by private lenders with federal guarantees. They are not directly eligible for PSLF unless consolidated into a Direct Consolidation Loan first.
Related: Direct Loan, Consolidation, PSLF
Source: studentaid.gov
The 7.65% combined Social Security (6.2%) + Medicare (1.45%) payroll tax paid by both employer and employee. Section 127 payments up to $5,250 are exempt from FICA on both sides — saving the employer ~$402 per employee per year at the maximum benefit.
Related: Tax-Free, Section 127, W-2
Source: IRS Publication 15 (2026)
An interest rate that does not change over the life of the loan. All federal student loans issued since July 1, 2006 carry fixed rates set annually by Congress; private loans may offer fixed or variable.
Related: Variable Interest Rate, Refinancing
A temporary pause or reduction of loan payments during which interest always accrues, even on Subsidized loans. General forbearance is granted at the servicer's discretion for up to 12 months at a time, with a 36-month cumulative cap.
Related: Deferment, Loan Servicer
Source: studentaid.gov
The cancellation of remaining loan balance under a qualifying program — PSLF (10 years / 120 payments), Teacher Loan Forgiveness ($17,500 max), IDR forgiveness (20-25 years), or TPD discharge. ARPA 2021 made all federal forgiveness federally tax-free through December 31, 2025; OBBBA 2025 extended this permanently.
Related: PSLF, Teacher Loan Forgiveness, TPD Discharge, OBBBA 2025
Source: IRC §108(f)(5)
A Direct PLUS Loan made to graduate or professional students. Carries a fixed rate set 4.60 percentage points above the 10-year Treasury (8.05% for 2025-26 disbursements) plus a 4.228% origination fee. Eligible for PSLF and all IDR plans.
Related: Direct Loan, PLUS Loan, PSLF
Source: studentaid.gov
A federal repayment plan starting with low payments that increase every two years over a 10-year term (or up to 30 years if consolidated). Useful for borrowers expecting income growth, but not a qualifying plan for PSLF.
Related: Standard Repayment Plan, PSLF
Source: studentaid.gov
For 2026, an employee who earned more than $160,000 in 2025 (indexed) or owned more than 5% of the company at any time during the current or preceding year. Section 127 plans cannot discriminate in favor of HCEs.
Related: Key Employee, Nondiscrimination Testing, 5% Owner
Source: IRC §414(q)
A federal IDR plan capping payments at 10% (new borrowers post-July 2014) or 15% (older borrowers) of discretionary income, with forgiveness after 20 or 25 years. Qualifies for PSLF.
Related: IDR, PAYE, SAVE, PSLF
Source: studentaid.gov
The oldest IDR plan, capping payments at 20% of discretionary income or what would be paid on a 12-year fixed plan, whichever is less. The only IDR plan available to Parent PLUS borrowers (after consolidation).
Related: IDR, Parent PLUS Loan
An umbrella term for federal repayment plans that base monthly payments on income and family size: SAVE, PAYE, IBR, and ICR. All four are PSLF-qualifying.
The cost of borrowing, expressed as an annual percentage rate. Federal Direct Subsidized and Unsubsidized undergraduate loans disbursed July 1, 2025-June 30, 2026 carry a 6.53% fixed rate; Grad PLUS is 8.05%.
Related: Principal, Amortization, Capitalization
Source: studentaid.gov
The U.S. tax authority. Section 127 plan documents and §127 educational assistance benefits are administered under IRS rules; W-2 reporting and FICA exemption are enforced by the IRS.
Related: Section 127, W-2, FICA
For 2026, an employee who is (a) an officer earning more than $230,000, (b) a 5% owner, or (c) a 1% owner earning more than $150,000. Used in top-heavy testing for retirement plans, including SECURE 2.0 Section 110 QSLP matches.
Related: HCE, 5% Owner, Section 110
Source: IRC §416(i)
The company that handles billing and customer service for federal or private student loans. Federal Direct Loan servicers as of 2026 include MOHELA, Nelnet, EdFinancial, Aidvantage, and others. BenefitPlus integrates with all major servicers via verified ACH or NACHA payment files.
Related: Direct Loan, Principal
Source: studentaid.gov
A physician or healthcare provider who works on a temporary contract basis, often through staffing agencies. Locum tenens providers paid via 1099 are not eligible for Section 127 SLRA, but locums working as W-2 employees of a staffing firm or hospital can be — making employer choice strategically important.
Related: Contractor, Eligible Employee
The annual or written-plan compliance check ensuring a §127 plan does not favor HCEs. Includes (1) eligibility classification reasonable to all employees, (2) the 5% owner concentration limit, and (3) reasonable notice of the program. Failure means HCE benefits become taxable wages.
Related: HCE, 5% Owner, Plan Document
Source: IRC §127(b)
Anyone who owns more than 5% of the employer's stock or capital interest. Section 127 plans cannot provide more than 5% of total annual benefits to 5% owners and their spouses/dependents — known as the 5% owner concentration test.
Related: HCE, Key Employee, Nondiscrimination Testing
Source: IRC §127(b)(3)
The federal tax-and-spending package signed July 4, 2025. Among other provisions, OBBBA permanently extended the Section 127 student loan repayment provision (originally enacted in CARES through 2025) and made all federal student loan forgiveness permanently exempt from federal income tax.
Related: Section 127, SLRA, Forgiveness
Source: Pub. L. 119-21 (2025)
An IDR plan capping payments at 10% of discretionary income with forgiveness after 20 years. Closed to new enrollees as of July 1, 2024 due to SAVE plan rollout, but existing PAYE borrowers may remain on the plan.
The written instrument required by IRC §127(b)(1) establishing an educational assistance program. Must specify eligibility, benefits, and that benefits are not available as cash. BenefitPlus provides a template plan document at no charge during onboarding.
Related: Section 127, Educational Assistance Program
Source: IRS Publication 15-B
A federal Direct Loan available to graduate students (Grad PLUS) or to parents of dependent undergraduates (Parent PLUS). Requires a credit check; carries the highest federal student loan interest rate.
Related: Grad PLUS, Direct Loan
The original amount borrowed plus any capitalized interest. Section 127 SLRA payments can be applied to either principal or interest on a qualified education loan; most loan servicers apply employer payments to interest first, then principal, unless the borrower instructs otherwise.
Related: Interest, Amortization, Capitalization
A loan from a bank, credit union, or specialty lender (e.g., Sallie Mae, SoFi, Earnest) — not the federal government. Generally has higher rates, fewer borrower protections, and is eligible for Section 127 SLRA payments as long as it qualifies under §221(d)(1).
Related: Qualified Education Loan, Refinancing
Forgives the remaining balance on Direct Loans after 120 qualifying monthly payments while working full-time (30+ hrs/week) for a qualifying employer (government or 501(c)(3) nonprofit). Forgiveness is federal-tax-free under IRC §108(f)(1).
Related: Direct Loan, Forgiveness, IDR
Source: studentaid.gov/pslf
A SECURE 2.0 Section 110 term: a payment made by an employee on a qualified education loan, which the employer can match in the 401(k)/403(b)/457(b)/SIMPLE plan as if it were an elective deferral. The match counts toward 415(c) annual additions but is not double-matched.
Related: Section 110, SECURE 2.0, Elective Deferral
Source: IRC §401(m)(4)(A)
Defined in IRC §221(d)(1) as a loan taken solely to pay qualified higher education expenses (tuition, fees, room, board, books, transportation) for the borrower, spouse, or dependent at the time the debt was incurred, at an eligible educational institution. Includes federal and most private student loans; excludes loans from related parties or qualified employer plans.
Related: Section 127, SLRA, Private Student Loan
Source: IRC §221(d)
Replacing one or more existing loans with a new private loan, typically at a lower interest rate. Refinancing federal loans into a private loan forfeits PSLF eligibility, IDR plans, deferment/forbearance protections, and TPD discharge — a tradeoff borrowers should weigh carefully.
Related: Consolidation, Private Student Loan, PSLF
The Biden-era IDR plan introduced in August 2023, capping undergraduate payments at 5% of discretionary income with forgiveness after 10-25 years depending on original principal. Subject to ongoing 2024-2026 federal litigation; check current status at studentaid.gov.
SECURE 2.0 Act §110, codified primarily in IRC §401(m)(4)(A)(iii) and §408(p)(2)(A)(iv). Allows employers to make matching contributions on QSLPs in qualified retirement plans. Effective for plan years beginning after December 31, 2023.
Related: SECURE 2.0, QSLP
Internal Revenue Code §127, which excludes from gross income up to $5,250 per employee per calendar year of employer-provided educational assistance — including, since CARES (2020) and permanently after OBBBA 2025, qualified student loan principal and interest payments.
Related: Educational Assistance Program, SLRA, OBBBA 2025
Source: IRC §127
The SECURE 2.0 Act of 2022 (Pub. L. 117-328, Division T), enacted December 29, 2022. Includes 90+ retirement provisions; Section 110 specifically permits employer 401(k) matching on student loan payments starting in plan years after 12/31/2023.
Related: Section 110, QSLP, Elective Deferral
Source: Pub. L. 117-328
Employer benefit that pays a portion of an employee's qualified student loan principal and/or interest. When delivered through a written §127 plan within the $5,250 annual limit, payments are federal-tax-free to the employee and FICA-exempt for both sides. Also called SLRP.
Related: Section 127, SLRP
Synonym for SLRA. The two terms are used interchangeably across HR, payroll, and benefits literature.
Related: SLRA
The federal default plan: fixed monthly payments over 10 years (up to 30 years if consolidated). All payments qualify for PSLF, but the 10-year payoff means most borrowers finish before reaching 120 PSLF payments.
Related: Graduated Repayment Plan, PSLF
A Direct Subsidized Loan available to undergraduates with demonstrated financial need. The federal government pays the interest while the borrower is in school at least half-time, during the 6-month grace period, and during deferment.
Related: Unsubsidized Loan, Direct Loan, Deferment
Excluded from gross income under the IRC. Section 127 educational assistance up to the $5,250 annual tax-free threshold is tax-free for federal income tax and FICA purposes; state income tax treatment varies by state (most conform; California and Pennsylvania historically required separate analysis).
Related: Section 127, FICA, Taxable Wages
Compensation subject to federal income tax withholding and reported in W-2 Box 1. Section 127 educational assistance above the $5,250 tax-free threshold is taxable wages; below the threshold, it is excluded.
Cancels up to $17,500 in Direct or FFEL Subsidized/Unsubsidized loans for full-time teachers who complete five consecutive academic years at a qualifying low-income school. Math, science, and special education teachers receive the higher amount; other subjects qualify for $5,000.
Related: Forgiveness, PSLF
Source: studentaid.gov
A Direct Unsubsidized Loan available to undergraduate, graduate, and professional students regardless of financial need. Interest accrues during all periods, including in-school enrollment.
Related: Subsidized Loan, Direct Loan
An interest rate that adjusts periodically based on a benchmark (typically SOFR or Prime). Common on private student loans; never on federal Direct Loans issued after 2006.
Related: Fixed Interest Rate, Private Student Loan
IRS Form W-2, Wage and Tax Statement, issued annually by employers. Section 127 educational assistance up to the $5,250 tax-free threshold is not reported on the W-2 because it is excluded from gross income; amounts exceeding it are added to Boxes 1, 3, and 5.
Related: Box 12 Code S, Tax-Free, Section 127
Source: IRS Publication 15-B