There is $1.6 trillion in student debt in the U.S. Something like 92% of it is held by the federal government. Worse yet, 40% of student loan borrowers are 65 or older. It’s safe to say that this is a problem that we are not focusing on but one that will come back and bit us on the backside and the solution ideas, in my humble opinion, have been, in a word, pooh.
A lot of ideas are floating around some somewhat decent ideas that just don’t go far enough. Some have advocated for swapping vacation time for money towards your debt, while some schools are starting to give the students are doing an income-sharing agreement. Not bad but there is a way to kill two birds with one stone and it means tying replaying of student debt with the company 401k plan.
Broad strokes go something like this;
An employee with student loans will be required to sign up for the company’s new Loan Repayment/Retirement (random three-digit number) Plan. Currently a company can match up to 6% of an employees pre-tax earnings in a 401k (granted a lot of companies do less than this like 4%). Well in this scenario we split it up and an employer matches 3% of the employees pre-tax earnings (6% total) to go towards the employees student debt and the other 3% match (6% total) goes toward the standard 401k. If the employer only wants to do 4% match then we just split that (2% towards loans and 2% towards retirement). This means that the employee gets their loan paid down with pre-tax money and also gets that 401k kickstarted.
Granted there are lot of details to work out like what happens if the employee changes jobs, etc. Again, these are the broad, or if you prefer, the social media answer. The thing is that we require it. You graduate from college, get a job, you are required to do this or else, well we penalize you somehow and that can be done by not freezing the interest rate or making the employee pay a 1% increase on their loan.
Will this solve the $1.6 trillion issue we have now? Not completely but it’s a good start for current and future students get a pre-tax dollar way of dealing with their debt.
Now for when they scream “I can’t afford that!”, well we cut a deal with Dave Ramsey and get some baby steps out of debt going. But yes you can afford this. It’s pre-tax money so either you pay down the load and start your retirement or keep yourself with a pile of debt.
Again, there are a lot of details to get through but overall this is can work.