The Dem trio of Alexandria Ocasio-Cortez, Bernie Sanders and Elizabeth Warren have all—in some variation—called for free college and/or student debt forgiveness.
Senator Rand Paul is having none of it, preferring a more “conservative” alternative, according to the Washington Examiner, involving 401ks.
On Tuesday, he alluded to the Democrats’ proposals (albeit indirectly) when introducing his Higher Education Loan Payment and Enhanced Retirement (HELPER) Act, which he said is “a pro-taxpayer plan to help Americans more quickly and easily pay off their student loan debt and save more money for retirement.”
“Instead of empowering the federal government to increase its involvement in education, which will only raise costs even higher and further lower the value of our dollars to cover them, we can empower the American people to reduce the burden of debt, realize the dreams they studied hard to achieve, and grow their retirement savings,” Paul, R-Ky, noted.
Plan specifics
Paul’s HELPER Act would allow Americans to take up to $5,250 annually from a 401k or IRA—tax and penalty-free—to pay for college or pay back student loans. These funds could also be used to pay tuition and expenses for a spouse or dependent.
The plan would enable two parents and a child, for example, to put over $15,000 in pre-tax funds in one year toward tuition or loan repayment if each set aside the maximum.
Currently, Americans can only pay for their student loans with after-tax money, placing an unnecessary constraint on their budget.
The bill would also allow employer-sponsored student loan and tuition payment plans to be tax-free up to $5,250, and it would repeal the cap (and the phasing out) on deducting student loan interest, as student loans do not disappear when someone earns more money throughout their career.
Paul’s HELPER Act would also offer workers the choice to have an employer contribution to a 401k count as a Roth contribution.
“While current law defers the taxes on employer contributions, forcing Americans to pay taxes on the funds and its gains in retirement, this change would allow workers to pay the taxes right away, freeing their savings to grow tax-free and giving them greater financial security after they retire,” he said.
Although individuals can set up 401k or IRA plans on their own, and would be able to take advantage of the bill’s reforms to use pre-tax dollars to pay down their student debt, “passing the HELPER Act will encourage more employers to offer 401ks or education benefit plans if they do not currently do so,” Paul concluded, “as more workers will be able and incentivized to use such plans.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
