I’ve often thought, the easiest way to crash the U.S. economy and get the bankers attention would be for all 44 million Americans to skip next months student loan payment. Unfortunately, I’m not going to be able to get my plan off the ground due to a new proposal outlined in this corporate media report.
Sen. Lamar Alexander (R-Tenn.)—who is the chairman of the Senate Health, Education, Labor and Pensions committee—has proposed a massive overhaul to the to the student loan system, and the changes could have an impact on some 40 million people.
According to CNBC, the average student loan debt is around $30,000 currently. That’s up from $10,000 in the early ’90s. The country’s outstanding student loan balance is projected to reach $2 trillion by the year 2022.
There are currently 14 different ways those who owe student loans can pay their debt, but if Alexander has his way, that could soon be cut down to two, and both would involve your employer automatically deducting your student loan payments from your paychecks.
The two repayment options under Alexander’s proposal are as follows: under the first, a borrower’s monthly bill would be capped at 10 percent of their discretionary income—or what they have left after they pay all their bills each month. If a borrower does not earn income for any period of time, then no payment would be due, and it would not negatively affect their credit.
The second option would be to spread the repayment out over 10 years. Both options would require your employer to automatically deduct the funds from your earnings and send the money to the government.
Lamar believes his proposal (pdf) would streamline the student loan system and “protect” borrowers. He is also proposing “a new accountability system based upon whether borrowers are actually repaying their student loans.”
Consumer advocates have rightly criticized Lamar’s proposal and called it what it is—mandatory wage garnishment.