Republican Sen. Lamar Alexander has introduced a plan to completely upend the existing student loan payback system. How big is this plan? About 40 million borrowers big.
Under Alexander's proposal, there would be just two repayment routes: one in which borrowers' monthly bills are capped at 10 percent of their discretionary income and another that spreads their payments out over a decade. Employers would be responsible for taking the funds from their employees' paychecks and sending them to the government. (Of course, student loan borrowers currently can set up automatic payments with their lender. They also typically get a discount on their interest rate for doing so.)
"I think this proposal is likely to become law, after some tweaks," said Mark Kantrowitz, a student loan expert.
Needless to say, consumer advocates are alarmed.
For many borrowers, including those who lack stable employment or work in the gig economy, forced automatic payroll withholding may mean diverting money away from rent, heat or food in order to pay their student loans. It could also mean that they would have to give their employers a lot of information about their families (potentially including a spouse’s income) and their student loan debt in order to calculate the student loan payment amount.
This is a recipe for disaster, especially considering it would make the borrower's amount of debt known to their employer who could easily use that information to tailor promotions, offers of overtime, and raises.
An estimated 44 million Americans owe over $1.5 trillion dollars in student debt. A study from NerdWallet revealed that many millennials won't be able to retire until they're 75 and they will lose nearly $700,000 in retirement savings over a 50-year period. There's no question this country has a student debt crisis. Garnishing the wages of people already living paycheck-to-paycheck could turn it into a catastrophe.
(Photo: Flickr/DonkeyHotey CC BY 2.0)