I wrote a couple of weeks ago about HR 1716, the Tom Petri proposed legislation that would push all student loan repayments for new graduates into Income Based Repayment (IBR). On its surface, it sounds great because no matter what you owe, you wouldn’t be hit with a student loan payment you couldn’t afford, since repayment would be income driven from the get-go.
But I also wrote that the big winner if this legislation passes would be the federal government. This plan eliminates the forgiveness option currently available with IBR so while your payments would be lower, they could potentially last indefinitely. That’s just not cool. One of the best things about IBR is the ability to gain forgiveness after 25 years if your income is modest.
Since I first covered this proposed law, it continued to nag at me. One of the biggest areas of concern is the concept that it would be driven by payroll withholding. If this provision is non-negotiable, this legislation will remain greatly flawed. I agree that those who can pay their student loans should, but shouldn’t we leave it a system of personal responsibility where debtors make their payments themselves as with any other credit instrument?
It seems to me that involuntary payroll withholding of student loan payments is tantamount to garnishment. Auto-debit is different because it is consumer driven. You set up the pay to go to your student loan servicer but you are also in control of it. Payroll withholding is involuntary. Wage garnishment is typically a tool used by creditors when debtors don’t voluntarily pay their bills.
But should we treat all student loan borrowers as if they’re financially inept from the outset? Will idiot-proofing student loan payments handicap recent graduates and prevent them from learning how to budget and deal with their finances responsibly? I think it does and if they don’t learn these critical skills early on in their adult lives, it could set them down a road of one credit crisis after another.
Nehru said, “Life is like a game of cards. The hand you are dealt is determinism; the way you play it is free will.” This legislation seems designed to perpetuate a baby-sitter state where we don’t give people the room to think and choose for themselves. Naturally the best thing for the government is to take the money away before the debtor ever sees it, but this also prioritizes debt to the government over all other obligations and violates both free will and due process (constitutional basics…)
Life changes rapidly and sometimes there are things more important than making a student loan payment. For instance, if you know you’re losing your job in a couple of weeks, you may need every penny from your final paychecks to feed your family and keep a roof over their heads. The money that the government is garnishing could be the difference between food in bellies and being hungry and homeless.
And there’s no government mechanism that would move rapidly enough to generate a forbearance and end the garnishment in time to save this hypothetical family. This is an extreme example, but one that is valid. I could draw a hundred more variations on how government tapping paychecks could devastate families. It is important to pay your student loans – but not more important than putting food on the table and having clothes on your back.
So I caution temperance on HR 1716. The real beneficiary of this proposed legislation is the government. Any program that encourages student loan debt to follow low wage earners all the way to the grave deserves a red flag thrown. I encourage legislators to go back to the drawing board and draft a bill that would allow all loans to go into IBR from inception but without stripping out the protections of the original legislation!
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