With our nation’s outstanding student loan debt now over $1.4 trillion, lawmakers are looking for new ways to combat the growing problem, including giving employers tax breaks for paying down a portion of their workers’ student loan debt.
That’s the idea behind H.R. 795, a new bill introduced by Republican Rep. Rodney Davis of Illinois and Democrat Rep. Scott Peter of California. Both Representatives run districts where either the average student loan debt or default rate for their student loan borrowers is above the national average. Getting the bill passed is more important and urgent to these representatives since both districts have many struggling borrowers.
According to new LendEDU research, borrowers from the Class of 2015 from Rep. Davis’ District 13 in Illinois have an average of $32,356, which is higher than the national average of $28,400. 85 percent of graduates in the district have student loans although the default rate of 4.57 percent is much lower than the national average of 11.8 percent. It’s not clear how much student debt constituents in Rep. Peter’s District 52 in California have, but they are defaulting at a faster rate than most of the country. Currently, the default rate in Peter’s district stands at a staggering 15.7 percent.
Both lawmakers, according to Davis’ press release, said employers would benefit greatly from this bill because of the “advantage it gives them when recruiting and retaining younger employees.”
Rep. Davis argues the government is going to face billions of student loan defaults and contends that “this debt is a drag on our economy.” According to his press release, this bill “encourages employers to be a part of the solution…that will help graduates pay down their student debt.”
Rep. Peters agreed when he claimed that the bill would “speed up the repayment process so that graduates can begin to make investments such as buying a home, starting a family, or saving for retirement.”
Under the proposed piece of legislation dubbed the Employer Participation in Student Loan Participation Act, companies could pay up to $5,200 a year of their employees’ student loan debt. In return, these companies get a tax break for doing so. Employees wouldn’t be taxed on the aid either. This was one of the knocks against current student loan debt reduction programs offered by a handful of companies; the money from the benefit is treated as income and thus warrants a tax.
Offering more tax incentives to help employees get out from under their student debt could prompt more firms to offer it as a benefit which has been the case. Currently, high profile companies including Fidelity Investments, Natixis Global Asset Management, and PWC provide the benefit to their workers.
Author: Donna Fuscaldo
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