No. No, no. No, no, no, no. This is not a good idea.
According to Bloomberg, members of Congress have introduced bipartisan bills that would give a tax break to the growing number of companies that offer to help pay off their employees’ student loans. This deeply misbegotten legislative attempt to give college graduates a hand with their debt would be a largely pointless gift to white-collar workers and a handful of finance startups. It would do little to assist your typical struggling borrower. The entire concept should be put out of its misery before Capitol Hill turns it into a law while nobody is looking.
Realizing that many twentysomethings are more interested in whittling down their education debt than saving for retirement, a number of companies such as Credit Suisse and PricewaterhouseCoopers have started including student loan assistance in their benefits packages. Some are simply making loan payments, much the way employers offer an employee match on a 401(k). Others are partnering with private lenders to offer discounts on refinancing deals. But as Bloomberg explains, these perks haven’t become widespread yet, likely because they don’t enjoy the same tax advantages as retirement savings:
At the moment, when employees get money to pay off their student debt, it counts as taxable income, like a salary bump, just for debt payments. Unlike money that goes toward a 401(k), both employees and employers have to pay taxes on the benefit. For many businesses, it costs more than it’s worth. “I think the tax treatment now is a detriment to more companies adopting this,” said Rob Lavet, general counsel for SoFi, a nonbank lender, which works with around 400 employers that give employees loan refinancing reductions.
The bills in Congress, introduced by Democratic Sen. Mark Warner and Republican Rep. Rodney Davis, would “aim to take away that hurdle” by letting employers contribute up to $5,250 toward student debt payments tax-free.
This is a deeply ill-conceived way to address student debt. College graduates with stable work and cushy benefits packages do not typically need much help paying off their loans. They certainly don’t default often. You know who does need help? The unemployed for-profit-college dropout struggling to find a job, the one whose next employer probably isn’t going to have a generous loan-repayment program. There is no pressing public-policy reason why Congress should spend money helping PricewaterhouseCoopers accountants pay back their debts a little quicker when that same cash could be used to lower subsidized student-loan interest rates for everybody, or increase Pell Grants to keep poor students from borrowing in the first place. There just isn’t.
Worse yet, this bill could inadvertently undermine the entire structural integrity of the federal student loan program. Again, one of the obvious beneficiaries of this bill would be startup lenders like SoFi that specialize in refinancing student debt. The more companies that offer loan repayment as a benefit, the more business SoFi and its peers will likely get, as corporations make sure their employees refinance at the lowest rate possible. That could gradually pull college graduates with good jobs out from the federal student loan program, which would be a problem, since their reliable payments keep interest rates low for riskier borrowers, who tend to come from low-income families. It’s fine if companies want to help their own employees refinance without government help. But there’s no reason for Congress to subsidize the gradual implosion of federal student lending.
This is a bad idea. Kill it. Kill it now.
