Republican Senator Has A Controversial Student Loan Relief Plan

Sen. Rand Paul
ASSOCIATED PRESS

Senator Rand Paul, Republican of Kentucky, has released a bill that offers a creative — and somewhat controversial — solution to the student loan crisis.

Called the Higher Education Loan Repayment and Enhanced Retirement Act, or HELPER Act for short, the bill would allow student loan borrowers to withdraw money from their retirement accounts (such as a 401(k), 403(b), or IRA) to pay down their student loan debt without penalty. The HELPER Act would permit student loan borrowers to withdraw up to $5,250 from their retirement account each year to cover student loan payments, without worrying about a penalty for early withdrawal or additional taxes. In theory, a student loan borrower’s parents could do the same.

The bill would also allow employers to contribute up to $5,250 per year to an employee’s student loan payments as an employee benefit, without any tax implications. A growing number of employers have expressed interest in doing this.

Senator Paul argues that this would do a lot to help struggling student loan borrowers. The problem, however, is that many student loan borrowers are living paycheck to paycheck, and are not saving adequately (or at all) for retirement. Many student loan borrowers would not benefit from the bill at all.

Furthermore, financial experts question the wisdom of drawing down retirement accounts to repay debt, particularly given that most student loan borrowers are already not saving sufficiently. Mark Zandi, chief economist at Moody's Analytics, told local media that he does not believe Paul’s proposal would provide any meaningful benefit to student loan borrowers. He noted that “retirement is a long way off... [student loan borrowers] need to start saving early on to be prepared, and they’re just not going to be prepared if they take that money to pay down student loan debt.”

Paul’s bill is one of many that have been proposed or introduced in the Senate this year to address the student debt crisis. Other bills include Sen. Gillibrand’s proposal to fix Public Service Loan Forgiveness, Sen. Alexander’s proposal to streamline income-driven repayment, Sen. Rubio’s proposal to cap interest rates, and proposals by Sen. Warren and Sen. Sanders to cancel student loan debt.

It is unlikely that any of these bills will pass Congress in the near future.

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Senator Rand Paul, Republican of Kentucky, has released a bill that offers a creative — and somewhat controversial — solution to the student loan crisis.

Called the Higher Education Loan Repayment and Enhanced Retirement Act, or HELPER Act for short, the bill would allow student loan borrowers to withdraw money from their retirement accounts (such as a 401(k), 403(b), or IRA) to pay down their student loan debt without penalty. The HELPER Act would permit student loan borrowers to withdraw up to $5,250 from their retirement account each year to cover student loan payments, without worrying about a penalty for early withdrawal or additional taxes. In theory, a student loan borrower’s parents could do the same.

The bill would also allow employers to contribute up to $5,250 per year to an employee’s student loan payments as an employee benefit, without any tax implications. A growing number of employers have expressed interest in doing this.

Senator Paul argues that this would do a lot to help struggling student loan borrowers. The problem, however, is that many student loan borrowers are living paycheck to paycheck, and are not saving adequately (or at all) for retirement. Many student loan borrowers would not benefit from the bill at all.

Furthermore, financial experts question the wisdom of drawing down retirement accounts to repay debt, particularly given that most student loan borrowers are already not saving sufficiently. Mark Zandi, chief economist at Moody's Analytics, told local media that he does not believe Paul’s proposal would provide any meaningful benefit to student loan borrowers. He noted that “retirement is a long way off... [student loan borrowers] need to start saving early on to be prepared, and they’re just not going to be prepared if they take that money to pay down student loan debt.”

Paul’s bill is one of many that have been proposed or introduced in the Senate this year to address the student debt crisis. Other bills include Sen. Gillibrand’s proposal to fix Public Service Loan Forgiveness, Sen. Alexander’s proposal to streamline income-driven repayment, Sen. Rubio’s proposal to cap interest rates, and proposals by Sen. Warren and Sen. Sanders to cancel student loan debt.

It is unlikely that any of these bills will pass Congress in the near future.

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