A proposed law aims to completely overhaul the student loan system by having monthly bills automatically deducted from borrowers’ paychecks.
According to CNBC, Senator Lamar Alexander (R-TN) — chairman of the Senate Committee on Health, Education, Labor and Pensions — has proposed legislation that would offer two student loan repayment routes: one where borrowers’ monthly bills are capped at 10 percent of their discretionary income, and a second option that divides payments over a decade. Employers would be responsible for taking the funds from their employees’ paychecks, and sending them to the government.
If approved, the changes could affect around 40 million people.
“I think this proposal is likely to become law, after some tweaks,” said Mark Kantrowitz, an expert on student loans.
In November, student loan debt in the U.S. set a new record, hitting $1.465 trillion, and is expected to reach $2 trillion by 2022. One in five borrowers are currently in default or delinquency on their student debt.
Alexander said the regulation would not only simplify the student loan system, but protect borrowers. “It makes sure [that] if there were no money earned, there would be no money owed, and that would not reflect negatively on a borrower’s credit,” he said.
However, consumer advocates have balked at the plan, calling it “mandatory wage garnishment.”
“For borrowers with tight budgets that need to be navigated on a monthly basis, forced automatic payroll withholding may mean diverting money away from rent, heat or food in order to pay their student loans,” said the National Consumer Law Center in a report.
Barmak Nassirian, director of federal relations and policy analysis at the American Association of State Colleges and Universities, called the proposed regulation a “detour from real reform.”
“This is a system rife with fraud and predatory lending,” he said, adding that some consumers might have issues with their employers having access to the details of their debt.