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$1 trillion.   That’s the amount that the Millennial Generation has been saddled with in student debt.  Yes, that’s an unfathomably large amount of money.  It’s more than all Americans owe on our cars and trucks, and on all of our credit cards (both of which are declining).   But year after year, student debt is rising as college gets more expensive and state governments reduce their investment in education.  Not going to college is not an option either—just look at the unemployment rates for college graduates (3.9 %) versus high school graduates (7.4%).

Making payments on that debt can be crushing.  Just look at the payments my wife and I are facing—more than $800 per month for the minimum payments.  And that’s with paying our own way through grad school (which is more and more necessary to stand out in the crowd).  That’s $800 per month we can’t spend on housing, or having a baby, or travel, or food and dining out.  That’s $800 a month in interest being sucked out of the Vermont economy and into the bank accounts of Sallie Mae.  Multiply those monthly payments across millions of Millennials, and we’ve got a problem on our hands.  

Now, this debt burden is affecting the economy as a whole, from the auto market to the housing market.   First-time homebuyers are buying fewer homes—representing 30 percent of all homebuyers today, compared to 40 percent before the recession.  In fact, if you’re 30 and have student loans, you’re less likely to own a home than someone without a college degree.  This is spilling over into car ownership as well—the percentage of 25-34 year olds owning cars has been consistently declining.

But there is a solution that will allow us to work our way out of this generational hole, by partnering with those who benefit most from the fruits of our education—our employers.

Every payday, I’m faced with a choice: do I put money in my 401(k) to save for retirement, and get the company match, or do I pay off my student loan debt and leave money on the table?  Right now, it’s no contest.  Congress has said that employees can contribute tax-free earnings to their 401(k), and employers follow Congress’s cues.  But wouldn’t it make more sense for me to pay off my student debt now and save for retirement once I’m in the clear?  After all, standard student loan interest rates are 6%, year-in, year-out.  Paying them off guarantees me a 6% return, compared to the risks and vagaries of a stock market that is largely beyond anyone’s understanding.  

But what if we gave folks with student loans another option similar to the 401(k)?  What if I were able to contribute pre-tax dollars toward paying down my student loans, and then my employer matched my contribution?  In my family’s case, that would mean an extra $3,300 every year going toward reducing this burden.  

We have the perfect vehicle for making this happen.  It’s called a 529 Savings Plan—which allows parents to save for their children’s college, tax-free.  Already, Vermont and 34 other states offer state tax credits in addition to the federal tax credits.  But there’s a catch—you can only use 529 Plans to pay for new tuition, room and board, books, or other qualifying expenses.  You can’t use it to pay for tuition, room and board, or books that you paid for with loans.  If Congress added in two simple words—“student loans”—to the list of qualifying expenses, they’d instantly opened up a whole new source of private capital as we work to pay down this burden.   Companies would have another benefit to recruit young talent, and young workers would be able to finally start getting ahead.  

As Congress debates student loan interest rates this week, they should remember that it’s not just about the interest rates—a more important question is how we’re going to pay down the student debt altogether.  Opening up 529 plans provides a simple way to do just that.


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Originally posted to conantd on Mon Jun 03, 2013 at 07:39 PM PDT.

Also republished by Community Spotlight.

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