Will This Solve America’s Student Debt Problem?

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Tired of seeing your taxes automatically removed from each paycheck? If Republican Senator Lamar Alexander has his way, borrowers would have to foot the bill for their student loans in a similar way as part of a mandatory federal student loan repayment program.

Alexander, who hails from Tennessee, also serves as the chair of the Senate’s Committee on Health, Education, Labor, and Pensions, which oversees affairs related to higher education in addition to its other numerous responsibilities. In an attempt to pay down the burden of student loans hanging over America’s young working class, Alexander proposed a system that would automatically withhold student loan payments from a borrower’s paycheck, similar to how taxes are currently withheld.

In a recent speech, Alexander said he wants to simplify student debt, “streamlining” the nine repayment plans that are currently available to borrowers of federal loans. With his proposal, he hopes to ensure that borrowers aren’t stretched thinner than necessary with “a new option that guarantees that borrowers would never have to pay more than 10% of their income that is not needed for necessities.”

“If a borrower loses their job or does not make enough, they would not pay anything and it would not hurt their credit score,” Alexander added. “The monthly payment would be automatically withheld from borrowers’ paychecks, just like federal taxes.”

The proposal, while intriguing, is unlikely to pass as it will certainly become a partisan issue in today’s hostile political climate. A bipartisan agreement over anything these days is rare, and Alexander plans to retire by 2020. Will tensions cool enough in a year to push this through, provided it has enough support?

Chances are slim, even after Trump’s attempt to unite both parties in his latest State of the Union address. But that’s not stopping Alexander from at least getting the conversation started in Washington on how to tackle America’s growing student-loan problem.

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Supporters of the federal repayment plan say that it will allow borrowers to get out from under crippling monthly payments they can’t afford, and that by relieving some of the pressure on debtors, it will cut down on default rates – the biggest cost to federal lenders long-term.

Critics, like Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, claim that Alexander’s proposal will imprison debtors financially.

“It’s a bad idea,” said Yu. “The bottom line is it would force borrowers to prioritize their student loan payments above any other kind of expense they have.”

Yu added, “A lot of the borrowers that we work with, their budgets don’t line up, they have $2,000 of expenses and $1,500 of income and at the end of the day you have to make a choice. The priority has to be keeping a roof on people’s heads, putting food on the table.”

In Yu’s remarks lies the heart of the problem – that there are plenty of borrowers out there who simply aren’t using their degrees, or earn too little to warrant the costs of a modern college education.

Alexander’s payment plan, while a valiant effort, won’t correct the cause of the student debt crisis. The long-term fix involves getting to students before they even select their major, ensuring that they pursue valuable degrees and have realistic expectations for their futures.

Perhaps that means that we get rid of federal student loans altogether and turn the whole industry over to the private sector – a place where lenders would be less likely to dish out tuition money for what they deem are frivolous degrees.

Either way, this is something that’s unlikely to be solved by 2020, Alexander’s planned retirement year, and it could eventually become a hot-topic in the next presidential election. It’s an issue that no candidate, incumbent or otherwise, would want to touch with a 10-foot pole, simply because there’s no easy solution.

1 COMMENT

  1. Student loans should be underwritten like all other types of loans and credit. There has to some basis for the amount of a student loan. Some degrees are just not worth that much in potential earning power. The amount of a loan should reflect that. All easy student loans have done is create an inflationary bubble in the cost of higher education. College costs are the highest rising costs of any major sector of our economy.

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