Student debt is one of the greatest threats to long-term economic prosperity facing the United States. The impact is vast – more than a trillion dollars of outstanding student debt is preventing individuals from buying a car, saving for a home, starting a new business or securing their finances for retirement. The emotional and mental strain of not having the financial independence to do what they want may be less measurable, but is certainly no less real.
Student debt is an anchor weighing down the forward economic progress of many in this country. And, importantly, these problems are more evident even at a time of sustained economic growth. Should America experience a sharp recession, with borrowers suddenly unable to repay their loans, the situation could quickly go from bad to dire. Meanwhile, time marches forward and the life prospects of those saddled with debt are unfairly diminished.
In the face of such an enormous problem, there is one critical solution at our disposal today that would provide a definitive and far-reaching impact. If this or a future Congress and administration can pass this permanent fix to an unsustainable environment, the nation will be the better for it. It is called the Employer Participation in Repayment Act.
The good news is that this bill is sitting before Congress today with considerable bipartisan support. This bill could meaningfully improve the economic outlook for millions of Americans, if only the House and Senate could find the will to pass it in 2019.
Under the bill, employers would be empowered to create a new tax-free benefit for employees – a direct monthly contribution toward paying down student debt. Coupled with the borrowers’ own payments, this benefit could quickly reduce interest payments and put employees on a faster track to fully repaying their loans. Think of it as the modern-day 401(k) employer match. In doing so, this bill rightfully situates student loan repayment alongside health care and retirement savings that, as a society, we incentivize employers to support.
That’s not just good economic policy, it is also fundamentally fair. Young Americans are told consistently from a young age that to achieve success and the American Dream, they must have post-high school education. According to studies, in just the past 5 years nearly one-third of employers have increased their educational requirements, which has in hand also contributed to nearly a third of Americans pursuing a college education, the highest level ever measured. And this increase in college degrees comes at a cost – it has driven nearly 72 percent of college students to take out loans to finance these educations.
More and more employers have instituted a degree requirement and benefited from the call to arms Americans are answering by funding their education. But wages haven’t kept up, and employers have yet to figure out how to address this critical challenge facing their employees. Our current tax laws only make matters worse in disincentivizing employers to help.
But many will choose to do so if they can make that benefit tax-free. It’s exactly what we’ve seen happen with health care and retirement. In today’s tight labor market, employers would have the opportunity to create a better value proposition to attract and retain the best talent by offering such an attractive benefit.
To be sure, this bill is but one step in a long, but necessary journey that we must all make together. Ultimately, a permanent fix to the student loan crisis requires us to address root causes including the ever increasing costs of education: urging employers to not overstate requirements for the job to be done when they are not essential to job performance, finding better ways to ensure that the education students receive prepare them for the jobs that are available, lenders working to ensure the amount of debt taken out will be affordable based on future potential earnings, and holding educational institutions more accountable for the quality of the education they deliver, while maintaining a reasonable cost.
We must act decisively today and help Americans who are shouldering the heavy burden of student loan debt alone for years to come. A great step and a resounding message to send to all aspiring people in America is in front of us – the bill is written; it has more than 200 co-sponsors from both parties, and it can bring needed relief to millions – not just millennials, but the parents of students and even adults well into their 40s, 50s and 60s who have never been able to escape the burden of their and their children’s debts, despite earning a consistent income.
2019 is coming to a close. Next year, we will face an election and little chance of significant legislating. Before this year comes to a close, Congress and the administration could deliver something with real impact to Americans of all backgrounds by passing this sensible bill now. It’s a small step for our leaders to take, but one that will certainly make their footprint bigger than their foot! Congress, pass the Employer Participation in Repayment Act.
Anthony Noto is the CEO of Social Finance Inc.
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