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Rand Paul Wants to Destroy Retirement to Help with Student Loans

Sen. Rand Paul (R-KY) has proposed a bill that will destroy the retirement hopes of tens of thousands of future retirees. In a recent email from Paul, he stated, in part:

While you often hear me sounding the alarm over our country’s national deficit, that’s not the only debt in need of serious attention.  In the last decade, U.S. student loan debt has skyrocketed to its highest ever at $1.6 trillion, with the average 2018 college graduate owing approximately $29,200 in student loans.

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Most people go to college so they can one day become more financially stable, but the accompanying pile of debt threatens that vision of a successful future.  That’s why I have a plan to help alleviate student loan debt, accelerate loan repayment, and enhance retirement savings.

This week, I am introducing the Higher Education Loan Payment and Enhanced Retirement (HELPER) Act.  Currently, everyone has to pay student loans with money out of their pockets that has already been taxed.  My bill would instead allow individuals to take, tax and penalty free, up to $5,250 from their 401(k) or IRA annually to pay for college or to pay back student loan debt, and it can be used to pay tuition and expenses for a spouse or dependent.  My bill also allows employer-sponsored student loan and tuition payment plans to be tax free up to $5,250, a common benefit new graduates are seeking from employers.

Because of student loan debt, workers are often not fully contributing to their 401(k)s.  My bill changes the incentive to invest, since that money can be used to pay down burdensome debt. 

Being able to make student loan payments with pre-tax money will not only help people pay their loans off faster, but it will also lower their taxes overall.  U.S. bonds are currently paying less than 2%, while the federal government charges nearly 5% interest on an undergraduate student loan and up to 7% on a graduate loan.  Choosing to invest $5,250 in student loan repayment instead of U.S Bonds through a 401(k) is $163 more advantageous to workers, as 95 percent of the student loan payment goes to principal.

My bill also addresses the cap and phase out on deducting student loan interest — repealing it.  Student loans don’t just disappear when you advance in your career and earn more.  Moreover, capping and phasing out the interest deduction can have the effect of creating a tax penalty, disincentivizing workers from taking higher-paying jobs.

But this plan wouldn’t just help college graduates.  It would also help those planning for college.  Imagine you start working at Walmart at age 16 at their lowest pay, $10.18 an hour.  You work there through college (averaging 20 hours a week) — so about 6 or 7 years — and you contribute the full 6% toward Walmart’s 401(k) plan.  By the time you graduate, you will have more than $7,500 to pay toward your student loans.  That means you have already saved enough to pay off more than one fourth of your college debt by the time you graduate.

Furthermore, if two parents and their college-bound child each put aside the maximum amount of $5,250 per year, that would make a total of $15,750 pre-tax dollars per year available to pay for college.  This fact alone would transform how Americans save for college by essentially reducing college tuition by about a third by allowing parents to pay for it with pre-tax dollars.

Why will this destroy the retirement hopes of so many? To begin with, it’s difficult to get younger adults to save for retirement, let alone allowing them to take tens of thousands of dollars out of their 401(k) or IRA retirement accounts. Furthermore, many younger people who do opt to open a 401(k) or IRA, do not put in the maximum allowable and not all employers match that amount. Then, by allowing them to withdraw over $5,000 a year to pay for their student loans, which average about $29,200, would not only take that amount away from their retirement but it also takes away the compounded interest away from their retirement as well. Depending on how their 401(k) or IRA is set up and when they start putting into it, this could cost many people with student loans well over $100,000 or more from their vitally needed retirement. For those with higher student loans, it would mean even less left for their retirement.

Now add to this the economic predictions that by the time many millennials retire that Social Security as we know it today will no longer exist. This could mean that their 401(k) or IRA could be their sole source of retirement income. To allow them to take away from this will ultimately force many of these future retirees to continue to work through their retirement years and this is not what many want to look forward to.

Sen. Rand Paul’s bill is a bad idea with serious future consequences.

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16 comments

  1. Rand Paul is off his ROCKER!!! If the kids want to go to college they need to have skin and work in the process.
    Most young people who plan work summers to help parents pay for college. Smart parents start setting aside funds for college when the children are born. What’s wrong with making sacrifices for our children. Too much depending on government to pick up the tab for all the slackers and illegals in our society.

    • Somebody should take a baseball bat & rearrange this idiots brain. He s/b a democrat. If you can’t pay , don’t go to school. I have 4 college degrees & paid them all off by WORKING. 3 B.A.’s & an MBA. You can do it. Interest should not be charged to these accounts so it can be paid off easier. After all they are this countries future. By the way I’m 76 years old.

  2. my son paid for his! others just go to college to have fun, not learn! they all need to pay for that decision!

  3. So the alternative is to simply “forgive the debt”? If that’s the case, how about we have a discussion about the college tuition that I paid for my three children 20yrs ago (totaling over $150,000) which has been paid in FULL or how about the tuition that my parents paid for my brother, sister and me 42yrs ago for us to get a college education? Where do my father and I go to get our MONEY back, will Bernie “dickhead” Sanders or Pocohontas Warren repay us for our costs or how about giving us a FULL credit to be applied against all of my future taxes until the amount I paid plus interest is recaptured?? I bet the Treasury would love that!! Truth is there are “NO BIGGER IDIOTS” in the world then journalists and reporters like you people. At least Rand Paul is providing a reasonable alternative for people, that most people would not oppose, except for the brain damaged snowflakes like yourselves!!

  4. As a parent presently paying off the Student Loan debts for my son, I think Rand Paul’s legislation has merit. The allowable IRS interest deduction of 2,500 per year is ridiculous, only designed to put more taxpayer money into the hands of Congress to earmark and insure their re-election.

  5. Paul’s bill gives immediate interest relief so unpaid loans do not become bankruptcy, which is much worse than diminishing their future 401(k)/IRA accounts. But the real problem is that tuition costs skyrocketed when the Feds took over student loans. This led to 300% increases in college costs because it became too easy to get “on credit” loans that most people mismanage, so colleges raised their prices. This was as ignorant and destructive as mortgage backed securities that fueled the housing bust. The real solution is to get the Federal Government out of giving personal loans and making money off the interest. Next, the Feds should take the hit just like the banks had to and eat 50% or more of the balance on each bad loan they issued, as well as suspend the interest on all past loans. It is ridiculous to owe $100,000+ for a degree in many useless degrees created just to get kids into college and make the Establishment more money.

    • There is only taxpayer money. The Fed is borrowing from the central bank (Federal Reserve) and the “world” is buying our treasury bills and notes. So, who is going to take the hit?? Fiscal year 2016 had a deficit of 666 BILLION DOLLARS and Fiscal Year 2017 had a deficit of 779 BILLION DOLLARS.

      Who is going to pay the monies instead of the borrowers? You claim us taxpayers? Well then I QUIT, so NOW who is going to pay the student loan money? See? Federal Government has no money, all they have is what they have and are taking from the taxpayers.

      At some point, those loaning money to us will lose faith in us and will loan no more. What’s going to happen then? Our federal government will be on a “cash on the barrel head” basis.

      Federal government is no different than a family. You have a credit card (or 2 or 3) and you have a mortgage. Continue borrowing against your “house” by taking equity out through your HELOC and at some point you hit the wall.

      Hope this explains simply what is happening in reality.

      • I agree with Rand Paul often but this particular situation I really know he’s lost his mind. These millions of people who took out education loans and promised faithfully to repay their education loans lied and by the way it’s abundantly unfair to the millions of people who came before and did or are repaying their loans faithfully.

  6. I have had 3 children attend college and all three graduated with large debts– they are all in the 30s and 40s now. Two of them are still trying hard to pay off student debt. I think that Rand Pauls plan is amazing and would benefit granduating students and families to pay off their student debts. The student debts carry a very large interest rate that creates a forever debt. Being able to use 401K’s to pay off student debt allows these young adults to begin a debt free life sooner and then they can work on building their 401k’s with more funds available to grow for their future.

  7. The colleges should receive no government money to help with the first 2 years of college. This would help lower tuition loan debt. 2 year colleges are for general education and we should not have people who are doing those classes on federal aid at senior college tuition rates. The only exception is for vets of the military.

  8. Nothing that I read stated that students HAD to do it his way or no way at all. It simply gives families another option to consider. Further I noticed that the writer failed to provide an alternative. Pretty easy to sit back and throw rocks. Show us a better plan.

  9. There are some thoughtful comments here. Obviously there is more to consider than the title of this article implies.

  10. I don’t think have these people read the article, I think they just read the headline. If you read what Paul wrote you’ll see that he’s basically proposing to allow them to pay for their student loans themselves with money that they earned tax free in their 401K plans without penalty. Is Bill also allows each of the parents to put in $5,250 tax free to help pay off the student’s debt. With the majority of this money going towards the principal of their student loans instead of the interest on money borrowed.. A little common sense is in order here, it will do the student no good to have a decent 401k plan when they retires if they also has a massive student loan debt that they are still making payments on..

  11. I don’t think have these people read the article, I think they just read the headline. If you read what Paul wrote you’ll see that he’s basically proposing to allow them to pay for their student loans themselves with money that they earned tax free in their 401K plans without penalty. His bill also allows each of the parents to put in $5,250 tax free to help pay off the student’s debt. With the majority of this money going towards the principal of their student loans instead of the interest on money borrowed.. A little common sense is in order here, it will do the student no good to have a decent 401k plan when they retires if they also has a massive student loan debt that they are still making payments on..

  12. That’s why this country is in such bad shape. We keep giving our money away. We give it to anyone that wants to fill out a form. And never intend to pay it back. We give billions to foreign countries while our citizens are homeless and starving. We keep leaning toward Socialism. It’s got to stop.

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