We are less than three weeks away from when the first ballot will be cast for the presidential election. The 2016 Election has put many issues front and center for the contenders to discuss. The back and forth between candidates is like watching political theater, we must remind our readers that our core issue - "student loan debt" - is seemingly becoming a secondary issue and we are not impressed with any of the solutions on the table. We are also extremely disappointed to the extent that some candidates do not even mention student loan debt during their pitches to voters.
State of the Union: Student Loans Mentioned but Real Solutions Remain
This week featured two major political events. The first spectacle occurred Tuesday evening as President Barack Obama delivered his 8th and final State of the Union. The President did talk about student loans during the speech. He is clearly sympathetic to young Americans struggling with making payments. However, his solution to help borrowers is not a serious attempt to fix the problem.
The President's plan caps monthly payments on government loans. This is helpful for some borrowers, especially those borrowers with low monthly income and higher debt loads. However, this solution is not a game changer for most borrowers because it delays the pain. By capping the payments, this solution would force borrowers into lifelong payments. Capping payments now of course saves borrower some room in their budget to spend on other fixed expenses, but this decision can come back to haunt the borrower because the debt will still need to be paid back at a later time. The interest on the loans will build and build if the borrower delays paying back their loans. This could set up for a bigger pain for the borrower in the future.
Presidential Debate: Student Loans Not Even Discussed
This week also featured a high stakes Presidential Debate for the Republican Party. The debate threaded the needle on so many issues - international, domestic, social, and economic issues. GradFin watched the debate just like the State of the Union, waiting to here how our country's leaders plan to help Americans with student debt. However, there was not one mention of student loans during the debate. One of the presidential candidates, John Kasich of Ohio, talked about the high cost of college tuition. But he only mentioned this issue in passing. If these leaders can't talk about the problem then we are a long way from finding the right solution.
Tax Equity to Help Employers Repay Student Loans
Under the U.S. Tax Code, there is a tax bias against "employer student loan assistance" programs. While the IRS provides favorable tax treatment for "tuition" assistance plans, the same benefit is not available for employer assistance of student loans. As more and more college grads are entering the workforce with huge loan burdens, it makes sense to encourage employers to help them pay this debt.
Congress should pass legislation to amend the tax code to allow employers to pay student debt without facing tax consequences on those payments. We encourage you to help us spread the word to your Member of Congress to pass legislation today to equalize the tax treatment of employer sponsored student loan assistance programs.
There are two pieces of legislation that would help. H.R. 3861, the Employer Participation in Student Loan Assistance Act, introduced by Congressman Rodney Davis, would create an annual $5,250 tax exclusion for employer payments to student loans. H.R. 1713, the Student Loan Payment Assistance Act, introduced by Congressman Scott Peters, would exclude up to $6,000 on the payments of student loans by an employer. Both of these plans would be perfect and would encourage more companies to get involved to help their employees.
As GradFin is talking with companies to line up employer sponsored payment plans, it sure would help if the government provided a tax exclusion on these benefits. Congress can open the floodgates on employer sponsored debt repayment plans. This is what is needed to really help borrowers pay down their debt faster. We don't need our leaders to turn a blind eye to the problem. We need them to step in and help.
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