Employer-Sponsored Repayment Assistance Initiative Is A Constructive Government Solution To The Student Loan Debt Crisis

​Close to 45 million Americans collectively owe around $1.5 trillion in student loan debt.  Student loan debt is now the second largest source of consumer debt.  Only mortgage debt is higher.  Unfortunately, the cost of education is rising eight times faster than wages, thus making it harder for those with student loan debt to repay their loans.  This reality also means a reduced return on investment for most graduates.  Unlike a home, which tends to rise in value as the economy grows, the economic value of an education depends on the ability of a graduate to use their education to find a better paying job or start a business.  Absent the benefit of an increased income, student debt is nothing more than a burden on the finances of former students and their families.  The impact of student debt on the personal budgets and spending habits of consumers is nothing more than a burden on the economy when it does not help people expand their incomes and create new opportunities.  The situation is so bad that the likes of Education Secretary Betsy Devos have declared a student loan debt crisis.  There are, however, two solutions worth noting.

Under a plan forwarded by Republican Senator Lamar Alexander, employers would be responsible for garnishing the wages of employees who have student loan debt.  Borrowers would have a choice: they can either cap their student loan payments at 10% of their income or they can spread their debt out over ten years.  While 10% represents a significant percentage of anyone’s income, a ten-year repayment period could easily translate into a significantly higher monthly payment for borrowers.  Quite frankly, the proposal does nothing to actually address the harm of growing student loan debt.  It simply makes it mandatory to prioritize student loans over other expenses, including basic necessities like food, shelter, and utilities.  The Republican plan is reminiscent of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which made it nearly impossible to discharge student loan debt through bankruptcy.  When the problem is an inability to afford student loan debt, these no-solutions actually make the problem worse for individuals and the economy.  What they do is preserve the student loan economy by shielding lenders from the market forces and the consequences of their unchecked lending, thus they help fuel the rising cost of college and the amount of student loan debt.  
 
In declaring the alleged student loan debt crisis, Devos blamed rising college costs on increased government lending.  While Devos is most likely correct when she says colleges are charging more to soak up more Federal loan dollars, the 2010 Obama Administration policies she cites were a response to already rising college costs.  Clearly, the Obama initiatives failed to address the issue of rising education costs.  The Obama Administration adopted a stopgap approach to the affordability issue in education by trying to help more students access more funds.  Essentially trying to catch up with the rising cost of education, the efforts of the Obama Administration did little to solve the root problems.  The cost of education is rising too fast and the future wages of students are growing too slow.  Unfortunately, the Alexander proposal will not help student loan borrowers either.  It will simply help stabilize the student loan market and higher education market, which needs a correction.  It will also hurt borrowers when they cannot afford their student loans while forcing them to expose their personal finances to their employers.  
 
The Employer Participation in Student Loan Assistance Act, in contrast, could potentially help graduates.  Introduced by Senator Mark Warner, Senator John Thune, Senator Ed Markey, Congressman Scott Peters, and Congressman Rodney Davis, this bipartisan piece of legislation would allow employers to provide their employees with up to $5,250 in tax-free benefits per year.  The bill expands on current programs that allow employers to pay for the education expenses of employees to include past education expenses.  In essence, the bill treats repayment assistance like a health insurance benefit.  Like health insurance, the repayment assistance benefit could help create more demand for education and push up costs.  Given the already steep rise in the cost of higher education, however, the benefit is more likely to give employees and employers an incentive to exploit the benefits of education.  Not only will repayment assistance programs afford employees another means to increase their incomes, it will also add value to an employee’s education, which might encourage more employers to better utilize the education of employees, i.e. expand job markets for the educated.  This would, in turn, help sustain the massive buildup in the infrastructure of higher education.
 
It is not known how many employers will participate in repayment assistance programs, but it is likely to increase the number of US employers who offer repayment assistance from 4% and increase the number of participants.  Repayment assistance programs may only help those who work at larger companies.  They may only help employees who are already well-paid and those who graduated.  Even if few college graduates do benefit from such programs, they will still be a part of the solution.  The Employer Participation in Student Loan Assistance Act is a constructive answer to a growing issue for Americans whose financial security and freedom are threatened by massive student loan debt.  Unlike attempts to chain borrowers to debt they cannot afford by allowing them to simply borrow more in order to pay for the rising cost of college or prevent them from shedding their crippling obligations, the bipartisan effort has the potential to transform a crisis into an opportunity for both employees and employers.  Most importantly, it is a Legislative initiate that does not cater to special interests at the expense of vulnerable Americans who need the help of their government.