Now that we know that student loan payments will be suspended until next January, two questions remain: Will payments be suspended again (or again and again and again)? If the suspension is lifted, how will students begin to repay after such a long hiatus?
There are at least two answers: First, forgive all the debt and forget about it. Or second, find new resources to inject into the student loan system to reduce the burden on students.
It seems everyone has an opinion on debt forgiveness from equity to moral hazard concerns — but few have tried to find more money. It’s been hiding right in front of us: America’s employers.
When students invest in their education, their future employers benefit. Yet, in assigning the costs of that education the employers are strangely absent. Almost all of the cost is borne by the government through grants — as well as the students, through the tuition they pay and the debt they bare. It is time companies step up to their responsibilities.
One approach would be to extend the payroll deduction system to cover a portion of the student debt borne by workers. Companies match what their employees pay into Social Security to support the pension system. Why not the education system?
This in fact is happening now. Large national companies such as Fidelity, Abbott, Aetna, Staples and hundred others have voluntarily assumed responsibility for meeting the student debt costs of employees as part of their standard HR benefits. They believe that by addressing a major staff concern it helps them retain workers, setting them apart and commanding loyalty. Employees thinking of changing jobs must now consider jumping from one company that offers debt payments to one that does not. In 2018, 4 percent of American companies offered these benefits, up from 3 percent in 2015.
In order to encourage companies to take this direction and provide borrowers some relief during the COVID-19 pandemic, Congress passed The CARES Act, which became law in March 2020. Employers can now make pretax loan contributions of up to $5,250 a year to their employee’s student debt, without the payments being included in the employee's taxable income. This tax-exemption is the main reason employers are adding student loan repayment benefits in 2021.
Congress should consider making these contributions with tax benefits mandatory for all businesses. Companies might consider this a talent tax. It would be up to them to fix the amount they pay through the mix of talent they hire. One can imagine that they would agree to a talent tax before acquiescing to a rise in the Corporate Income tax. Workers, meanwhile, would not face an increased tax bill.
Involving corporate as well as main street America in meeting the cost of higher education would add pressure on colleges to control costs. It would be in all companies’ self-interest to have colleges bring down tuition and fees, which would directly benefit students and their families. Paying for college would give companies a greater incentive to make sure colleges are teaching students what their future workers need to know.
These changes should not be seen as occurring in a vacuum but rather at a time when the present model of higher education, heavily subsidized by the government, is seen not only by the general public but also by college administrators as no longer viable.
American companies large and small are direct beneficiaries of the American educational system. We need both their money and their advice to reform it.
Robert Hildreth is a former International Monetary Fund economist whose professional work involved restructuring South American debt and marketing sovereign debt loans. He founded the Hildreth Institute dedicated to restoring the promise of higher education.