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 Leadgenius 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