The student loan crisis is poised to be the next financial bubble. The CARES Act provided temporary relief by suspending student loan payments through September. Additional relief may come in the next COVID legislation, but these are simply temporary measures.
In a generation, the funding of postsecondary education has shifted from state and federal tax support to individual student loans — a shift that has now grown to a $1.6 trillion student loan debt, larger than automobile and credit card debt, and exceeded only by home mortgage debt. In Illinois, the state university support from the General Assembly has shrunk from $11 for every $1 paid by students to less than $1 for each student dollar.
The political fear of the third rail (taxes) has created an individual tax in the form of student loans — and a pending financial crisis larger than the 2008 financial meltdown. All current and proposed “student loan solutions” either nibble at the edges of the problem, have income caps, cover only public colleges and universities, do not cover private colleges and universities, do not cover private student loans (20% of the total) or do not address the need for a transition period to increase state and federal funding for education.
The Center for Education and Training Reform was formed as a 501(c)4 nonprofit corporation to address this and other education and training issues. As its first project, CETR has undertaken a grassroots campaign to change student loan payments into federal tax credits with passage of the Student Tax OPtion, or STOP, Act.
This is a nonpartisan campaign aimed at having members of Congress and candidates for Congress sign a pledge to pass the STOP Act. The STOP approach provides an incremental change period that keeps the current system in place while the process of increasing general taxation by state and federal governments works to reduce the need for the student loan system. In the process, a new middle class is created that will inject $17.5 billion ($393 average loan payment times 44.7 million) in disposable income into the economy each month for years to come. Faced with a need to speed economic recovery, this new middle class will drive the recovery by doing the things student debt has kept them from doing: buying automobiles, getting married, buying homes and starting families.
The STOP Act contains the following provisions:
1. All student loan payments (principal, interest, and fees) shall be allowed as individual federal income tax credits in the year paid. Currently, only interest paid on student loans is allowed as a tax deduction.
2. Similar student loan payments made in the previous five years are aggregated and established as federal tax credits (claw back provision).
3. All unused credits carry forward for up to 10 years.
4. All Social Security payments shall be exempt from garnishment of student loans. Currently, over 100,000 loan holders have their Social Security checks garnished to pay for student loans.
All current members of Congress and candidates for Congress are being asked to sign a pledge to pass the STOP Act. With 44.7 million student loan holders, including 8.9 million loan holders over age 50, there is significant motivation for the one in four American adults and their supporters who owe on student loans to vote for members of Congress and candidates who support the act. As in the California proposition method, if the overwhelming proportion of student loan holders support this campaign, the creation of a new middle class can be assured. If you have or know of someone who has a student loan, help make this effort go viral by making them aware of this effort.
For more information: www.StudentTaxOPtion.org
John Frana of Rockford is president of the Center for Education and Training Reform.