America is a nation that really loves its debt.
According to recently released data from the Federal Reserve in December, aggregate U.S. credit card debt crested the $1 trillion mark for the first time since 2008. This closely followed the news that outstanding auto loans in the U.S. also topped the $1 trillion mark as of the second quarter of 2016.
Student-loan debt is crippling
But when it comes to outstanding debts (mortgages excluded), nothing can top student loans. Currently, Americans are cumulatively saddled with $1.44 trillion in student-loan debt, and college students in the graduating class of 2016 walked away with an average of $37,172 owed. That's up 6% from 2015. It means the average student-loan payment for a borrower aged 20 to 30 is about $351 a month.
A recent survey from American Student Assistance found just how burdensome student-loan debt can be. Of the slightly more than 500 employees surveyed between the ages of 22 and 33 with student-loan debt, 56% were either worried about repaying their student loans all the time (26%) or often (30%).
Worst of all, most normal pathways to bankruptcy (chapters 7 or 13) don't provide relief from student-loan debt. That means defaulting on student-loan debt may entitle the federal government, based on a more than two-decade-old law, to garnish up to 15% of your Social Security benefit during retirement to help repay what you owe.
Not going to college means no student-loan debt, but as we've also seen based on data from Pew Research Center, it'll put you at a potential socioeconomic disadvantage. Data from February 2014 (in 2012 dollars) found that millennials aged 25 to 32 with a bachelor's degree or higher were earning an average of $17,500 more annually than those same-aged millennials with only a high school diploma. A degree is becoming more of an expectation than the exception to the rule these days, which means passing up college to avoid student-loan debt may not be a wise trade-off.
Could this bill solve the student-loan debt crisis?
So, what's a person to do?
At least a few members of Congress believe they have the answer.
Introduced in the House of Representatives in February, a bipartisan bill (H.R. 795) known as the "Employer Participation in Student Loan Assistance Act" would look to reshape the U.S. tax code by allowing businesses the ability to make contributions toward your student-loan debt on a tax-deductible basis. In other words, student-loan contributions from an employer would be treated similar to a 401(k) contribution.
Currently, most 401(k) contributions from an employer are tax-deductible for the company. The employee sees benefits, too, because these contributions grow on a tax-deferred basis. However, employer contributions toward their employees' student loan debt aren't tax deductible. In fact, most employers have to count a student-loan debt contribution as income for their employee, meaning the company gets taxed on it. This is why even though it's an attractive means by which to recruit and retain talent, few businesses actually offer a student-loan contribution perk.
H.R. 795 would rewrite the portion of the U.S. tax code to allow businesses to make student-loan debt contributions to the employee or directly to the lender of the employee on a tax-deductible basis. Presumably this would be great news for all parties. Businesses receive a healthy tax deduction and have yet another way to retain talent, while their workforce gets a big burden lifted off their backs. Consumers may even have more in the way of monthly income to put away for retirement. Imagine that!
Of course, with Congress working on healthcare reform and tax reform simultaneously, there is no guarantee that this student-loan debt measure has enough momentum to even make it to the next stage of the legislative process.
Here's what you can do
Though it'd really be a nice boost if Congress stepped in and provided a smart pathway to alleviate the student-loan debt crisis, consumers simply can't count on Capitol Hill to come to the rescue. Here are a few things to consider as a parent or student that may help alleviate your student-loan debt burdens.
To begin with, formulate and stick to a household budget. A 2013 Gallup poll found that just 32% of households stuck to a detailed monthly budget, essentially meaning that 68% of Americans probably don't have a good bead on their monthly cash flow. Understanding the ins and outs of your cash flow is imperative in order to adjust your saving and spending habits. If you've got four, five, or six digits in student loan debt, you need to be taking special care to repay this debt. Having a budget in place should allow you to optimally meet your loan obligation.
Getting started on a budget is also easier than ever. Budgeting software can be found online these days, and in many cases it's free or available for a nominal cost. You may even be able to formulate your saving plan entirely online by providing the software with your monthly saving goal.
Second, consider getting a part-time job while you're in college. The earlier you get out into the workforce, the quicker you'll be able to save for your future. In addition, you may even be able to gain lucrative experience in your field of interest, which can help when you graduate and are looking for a career-based job.
Lastly, take into strong consideration the return on investment (ROI) of your college of choice. A pricier college doesn't always mean a higher salary once you graduate, or throughout your working career. For instance, the annual PayScale College ROI report ranks more than 1,000 colleges based on their ROI. In essence, PayScale looks at what a person would be expected to earn over a 20-year period versus what it typically costs for an in-stage or out-of-state resident to obtain a degree at said university. What you'll find is that sometimes the best option might be a local state college, which can be considerably cheaper than sending your son or daughter off to more renowned college.
The student-loan debt crisis isn't going to solve itself. Be proactive while simultaneously crossing your fingers that Washington wises up and provides businesses with an attractive means of rewarding their workforce in the years to come.
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