Authored by Nick Greif, Head of Public Policy at InStride

Education benefits have become a staple across American workplaces. But unlike healthcare, retirement, or even commuter benefits, they’ve historically received far fewer tax incentives from Congress.

Fortunately for American workplaces, Congress took a step in the right direction this year with the One Big Beautiful Bill Act (OBBBA). The law made employer-funded student loan repayment permanently tax-free. It also tied the spending cap on tuition benefits to inflation, so it will increase each year starting in 2026. Together, these changes give HR leaders a clear green light to build comprehensive, long-term education benefit strategies.

Here’s what changed, why it matters, and what employers should do now to take advantage.

For years, HR teams have faced a frustrating paradox with student loan repayment benefits. The need for these programs was clear, particularly in industries with debt-burdened early and mid-career workers. But the rules made it risky. Because the tax break for student loan repayment was set to expire in 2025, many employers were reluctant to commit to programs that could soon lose their tax advantage.

OBBBA changes that. The legislation makes the tax break permanent, allowing employers to provide up to $5,250 annually in tax-free assistance for either tuition assistance or student loan repayment, or both. Even more significantly, starting in 2027, this spending cap will adjust annually for inflation, addressing decades of stagnation since the benefit was last updated in 1986.

Here’s a hypothetical look at the growth if adjusted annually for inflation:

This policy stability creates new opportunities for strategic workforce planning. Employers can now design education programs that address the full spectrum of employee needs without worrying about regulatory changes undermining their investment.

Now that student loan repayment and tuition support are both permanently covered under the same, growing spending cap, employers have more flexibility than ever. Start by assessing your employee base. What are their biggest barriers to growth: lack of education, financial strain, limited career visibility? Then, design your benefit to target those challenges:

Within tuition assistance, companies can further tailor their benefits to encourage enrollment in specific education options most tied to talent gaps within the company. This targeting allows education benefits to not only accomplish traditional total rewards goals around retention and attraction, but also serve talent development and L&D needs around upskilling, internal mobility, and productivity.

New research on what American workers think about workforce development found that 78% of employees are more likely to use an education benefit if the employer pays tuition upfront, compared to just 53% if reimbursement is required. This underscores a broader point: how the benefit is delivered matters just as much as what it offers.

For loan repayment, direct contributions to loan servicers are often more accessible than retroactive reimbursement. For tuition support, avoiding upfront cost burdens can significantly improve participation, especially for lower-income employees who can’t afford to wait to be reimbursed and may not otherwise take advantage of the benefit.

Education benefits are often misunderstood by employees because of complex eligibility rules, limited communications about them, and a feeling that employer-sponsored tuition must be “too good to be true.”

However, education benefits, especially tuition assistance, are among the few employee benefits shown to directly increase company revenue and profitability. Unlike many fringe benefits, where low participation helps control costs, education benefits deliver their greatest value to both employees and businesses when they are well-communicated and widely used.

For years, student loan benefits felt like a risky bet for employers. With OBBBA, lawmakers are signaling that they view loan repayment, as well as tuition assistance, as a permanent fixture within the modern benefits package.

In a time when many policy shifts are creating new complexity for HR, this one does the opposite. It simplifies decision-making. It opens doors for more intentional design. And it helps connect the dots between financial wellness, talent development, and long-term retention.

Employers now have a stable, flexible framework to build around, and one less reason to wait.

Ready to update your education strategy? See how leading companies are turning education benefits into immediate and long-term results.