A small tweak to the tax code could make student loan repayment the new 401(k) | Hacker News Reader

A small tweak to the tax code could make student loan repayment the new 401(k)

bloomberg.com

37 pointsdismal222 comments

Wow, what a noxious combination.

- A subsidy for a positional / signaling good that will only drive up prices

- That is only available if you're renting your labor, rather than starting your own business, investing, pursuing further studies, etc.

- And renting it to an employer in a stable / large enough business that they can engage in yet more special purpose regulatory paperwork, rather than a startup or small business

- Only applies if you were imprudent enough to take on large amounts of non-dischargable debt to begin with

- And targets the disproportionately well-off (simply by having a college degree & job, especially at an employer who can afford to offer the benefit, you're doing better than ~50% of the population).

I really hope this doesn't make it through Congress. We need to reform the education funding system, not continue to enable it.

The federal government is already basically putting money in the pockets of universities by subsidizing the loans up-front. Making them tax-free on the back-end will probably have similar unintended consequences.

Edit: if you're a US citizen, make your voice heard: https://emailcongress.us/

So, you have a plan that helps current students (who are carrying a collective ~$1T in loans), fixes the system so colleges and universities aren't dependent on huge subsidies, and makes college education affordable?

It's not that universities are dependent on huge subsidies. The problem is that the federal loan system has enabled them to do some pretty shady things that no other industry can do. Today, universities set the base tuition prices so high that essentially nobody can afford to pay. But then, the university gives their prospective students the opportunity to disclose exactly how much they can afford -- verifiable with their income statements and their parents' income statements. Once this upper bound on price is established, the prospective student then receives a combination of grants and loans to cover the difference.

Meanwhile, these loans (entered into by teenagers still in high school) are not subject to bankruptcy laws. So the repayment of them is all but guaranteed.

I don't know of any other industry in which the federal government enables a supplier to achieve tax-return-based proof of income in the supplier / purchaser negotiation process.

[Do] you have a plan that helps current students

Sadly, I don't. I empathize for people who are saddled with a lot of debt, but enshrining the problem by passing new legislation on top of the existing federal loan guidelines just perpetuates the problem for the next generation.

The fix is to make student loans dischargeable in bankruptcy. The market will rapidly correct to accommodate.

Yes, it's called the public college+university system, and it worked well for at least half a century and propelled the baby boomers who now run the USA

I feel like trying to solve social/economic problems by adding complexity to the tax code is almost never a net benefit. That's the whole reason the IRS is as bloated as it is, and why there's an entire private industry dedicated to income tax filing. It is insane.

And so indentured servitude would complete its reemergence in America.

I was going to say "no it totally isn't that!" But honestly I cannot form a justification for why an employee has to pay MORE to pay off their student loans solo than they do via a job.

Health insurance already has this issue. You pay more solo than you do via an employer. So it punishes people for doing a startup, being self-employed, or wanting to retire early.

This seems like piling more bad onto bad, and ultimately it really is like a giant financial punishment just for not working at a monster corporation.

I want to help people with their student loans, but this is a BAD way to go about that. If they insist then make it a private deductible everyone can get.

Why not make any loan re-payments a deduction instead of only being through a employer.... Otherwise you are favoring companies at the expense of independent contractors.

Taking that to the next step, any payment towards college tuition should be made tax deductible, regardless of whether the payment was made in the form of a loan or if it was paid directly. Otherwise you're incentivising people to take out student loans for their entire tuition amount and then pay them back afterwards, even if they had enough money to pay at least part of the costs while they were in college

And you're favoring people who work for employers generous/savvy enough to offer this benefit.

I don't get it.

Uhh, we already do (to an extent, and just the interest part.) http://www.forbes.com/sites/kellyphillipserb/2015/03/19/unde...

Borrow $70k at beginning of the year, pay 5% interest, your Pre-tax income is $70k. Make loan repayments monthly, all of it tax-exempt. Where your original post-tax income is $50k, your post-interest income now $67k.

Spend the $70k minus interest as tax-free money.

Why should employees who were smart enough not to wind up with mounds of student loan debt get less compensation?

Agreed. Even if they generalized it to just "debt payments" instead the same issue would be there.

Theoretically a non-debt employee would be able to negotiate a higher salary in exchange for not needing the student loan debt help but in reality since sharing salary information is frowned upon in the US culture you'd probably just never know.

I think it would be better if it was offered as "the company will provide X tax-exempt dollars, you, the employee can choose how many of those dollars go to paying student loans and how many go to a 401(k)." I would consider being more paternalistic and require some percentage to to the 401(k) because putting money aside for retirement is an important habit to develop early.

I also agree that this could further exacerbate the high cost higher education.

Another way to punish people for not getting in debt by making it so that they're less desirable on the job market.

How does it make people without debt less desirable?

by handing out degrees to people who take on debt.

Yeah, better to keep those dumb poors uneducated.

By making it cheaper businesses to hire people with debt. IE between equally qualified candidates, the one with debt will cost the business less.

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