Imagine budgeting out your bills the night before payday and the next morning you wake up to check your account only to see that your paycheck is short due to your student loan payments being automatically deducted. This is could one day become a reality if one Republican’s proposal becomes law.
Sen. Lamar Alexander, is a Republican and the chairman of the Senate Health, Education, Labor and Pensions Committee, who is proposing a way for the federal government to collect student loan payments. He wants student loan payments to be directly taken out of borrowers’ paychecks each month, just like federal taxes.
Under his proposal, he pitched two options: one option would be income based and would not require the borrower to make payments that is 10% of their discretionary income and the other option would be a 10-year plan, which will have equal monthly payments.
The average college graduate carries around $30,000 in student loan debt and it is predicted that the country’s outstanding student loan balance will be around $2 trillion by 2022.
Senator Alexander stated that this proposal would protect borrowers and streamline the student loan system. He stated, “It makes sure if there were no money earned, there would be no money owed and that would not reflect negatively on a borrower’s credit.
However, this proposal has sparked much concerns with consumer advocates and some of them are calling it “mandatory wage garnishment.”
If this law passes, which Mark Kantrowitz, a student loan expert believes with a few tweaks it is very possible, this student loan proposal could affect roughly 44 million people.
Kantrowitz said, “When a borrower defaults on their federal student loans the government currently can garnish up to 15 percent of their wages anyway, which is more than the 10 percent that would be taken out under Alexander’s proposal.”
“Many borrowers who default have sufficient income to repay their debts, but just have difficulty managing their money,” Kantrowitz said. “There’s the potential for a lot of elegance in the design of student loan repayment via payroll withholding.”
This proposal only applies to federal student loans. Private student loan borrowers will not be subjected to automatic student loan repayment withholding’s.