I’ve seen a few articles circulating the social media networks lately following the bill introduced by Congressman Rodney Davis which would grant employers a tax break, up to a certain amount, for loan assistance they offer their employees. AllOnGeorgia.com recently ran an Associated Press article on the issue as well.
Essentially, The Employer Participation in Student Loan Assistance Act proposes making a maximum of $5,250 a year in employer payments for student loan debts tax-free for the worker, and eligible for tax breaks for the employer.
I don’t know where to begin. We’ve over-incentivized student loans for so long causing what we now know to be the “student loan bubble” that is, in fact, on the verge of collapse, and the first step of a solution is to make sure the student gets an “untaxed gift” because someone else pays for something that is considered a burdensome debt?
We, as a nation, created this monster when we opened the flood gates of student loans to everyone – regardless of major, institution, amount, or ability to repay. Then we expanded the payment plans to be income-based, staggered, deferred, anything at all to make it “easier.” We allow interest on student loans to be tax-deductible much like a mortgage. But let’s face it: It isn’t working. The average amount of student loan debt of the 2014 graduating class was nearly $30,000 and almost 14% of those in repayment are in default.
I’ve been open and honest about my student loan debt. It’s suffocating and probably a mistake. Some days I wish I hadn’t gone to grad school, because the percentage of my work that entails what I learned is minimal, but I did and I recognize my own personal responsibility about it. I have to pay it back no matter what the cost and no matter long it takes. No one made me pull out a loan for school.
You wouldn’t ask your employer to include a loan reimbursement for your mortgage, or your car, or your credit card debt, or starting your side small business as part of your benefits package (the latest could be managed by Lendgenius for short term loans). What is the difference here? The student loan operation is already so far from the reality of life. You don’t pay your mortgage back based on income. You can’t refinance your house at a lower amount because you lose your job or take a pay cut.
This is the federal government we’re talking about here. If you offer a tax deduction for it, you’re encouraging a subsidy.
By continuing to manipulate the market and incentivize different behavior, we’re only pushing the already overloaded bubble one step closer to explosion. The correct answer is not to talk about the deductions taxpayers get for “something else,” because any tax deduction is a step away from lassiez faire economics. What we don’t pay now, we’ll be paying for later.
When this $1.2 trillion bubble bursts, it will be worse than the mortgage crisis. Except this time, it won’t be the big banks the fail. It will be federal government. And let’s not trick ourselves into thinking it’s a conservative foundation to use the government to incentivize someone to do anything.
I’ve said it before – if you’re unwilling to payback an investment you made into yourself, you’ll never be willing to pay back anything
I don’t think it’s a matter of being “unwilling”, it’s a matter of “not being able..nor, ever, ever, ever, in a million years, ever having the scintilla of a glimmer of a chance of even a dream of being able” to repay these RIDICULOUS student loans, especially at the way, WAY-above-market interest rates that these loans are still being charged. I place the blame SQUARELY at the feet of those financial aid professionals in higher education who encourage…and yes…DEMAND…that students turn themselves into indentured servants to finance their education which, may or may not make a difference in their future ability to earn a living.
But students know what they’re getting into when they apply. They’re given an estimated payback schedule with amounts.
I’m actually of two minds on this. The tax code is convoluted and I agree, there are far too many complex and varying deductions, allowances, in our present system of taxation. And while there is much discussion on what is better flat tax or fair tax, or the myriad variations of these general concepts . . .we have what we have right now.
And until such time as that changes, I don’t really take issue with a tax deduction for employers who pay some off their employees student loans. It’s discretionary, and essentially the private sector will be making that decision. As American businesses are generally taxed too much already, I’m fine with them getting their tax burdens reduced, for offering what is nothing more than a good, old fashioned, capitalist private sector benefit to an employee. It isn’t like the government is subsidizing the entire benefit offering, they are merely offering not to tax it or tax it at the full rate.
Again, this is taking into account the present, existing, convoluted tax system . . .the reality presently. One thing is for sure, it beats the crap out of debt forgiveness.
Further, while I understand your viewpoint of needing to “take responsibility” for the debt we voluntarily incur, it’s a tad more complex than that. Most young folks getting these loans simply haven’t been around long enough to be politically savvy. I know I wasn’t fresh out of high school. And as alluded to, the government AND the financial aid departments of the schools themselves made it sound like a deal too good to pass up to us young, fiscally naive kids wanting to better ourselves. I firmly believe the government and the schools at least somewhat culpable or complicit in some of the bad student loan decisions we voluntarily allowed ourselves to be roped in to. In a nutshell, we didn’t know any better, and the people who were in a position to know better, weren’t helping us make rational decisions based on sound financial considerations for the future . . . they were putting the hard sell on us to take the deal. Yes, Caveat Emptor and all that. I’m subscribe to that tenet. But I also believe young adults were and probably continue to be led astray, purposely, by government and colleges who are, with knowledge and careful forethought ignoring fiduciary responsibility and basically . . .well . . . conning the naive young’uns.
Again the costs for this solution will be incurred almost entirely by the employee and employer, with nothing more than a tax break incentive. That beats the hell out of a program like the earned income credit, where many folks get back 3 times more cash than they even paid in taxes. I haven’t really looked all that deeply into this, honestly. But under the present tax structure, this actually seems like a fairly reasonable, if imperfect, partial solution to a big problem looming on the horizon.
I agree! It’s similar to the student loan interest tax deduction – which overwhelmingly benefits affluent citizens rather than those in poverty.
I also wish people would be more critical of the home mortgage interest deduction. It’s America’s largest housing subsidy, and it overwhelmingly goes to rich taxpayers who don’t need it. Why should we be subsidizing the home mortgage of George Soros and Michael Bloomberg? It’s ridiculous.
Great info, cheers.