Sen. Rand Paul unveils plan for people to pay off student loans by dipping into their retirement savings
- Senator Rand Paul rolled out new legislation on Tuesday that would allow people to pay off their student loans with savings drawn from their 401k.
- Under Paul's plan, called the HELPER Act, Americans could take out $5,250 from their 401k annually - tax-free without any penalty - to pay for college or reduce the student loan burden.
- The Kentucky Republican senator said in a press release that his "pro-taxpayer plan" would "empower the American people to reduce the burden of debt, realize the dreams they studied hard to achieve, and grow their retirement savings."
- The plan was met with some criticism as some said it undercuts the purpose of a 401k and makes it even harder to save up for retirement and plan for the future.
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Senator Rand Paul of Kentucky rolled out new legislation on Tuesday that would allow people to pay off their student loans by dipping into their retirement savings.
Under Paul's plan, called the HELPER Act, Americans could take out $5,250 from their 401k annually - tax-free without any penalty - to pay for college or reduce the student loan burden. It would also allow that money to be used for a spouse or dependents.
The Kentucky Republican senator said in a press release that his "pro-taxpayer plan" would "empower the American people to reduce the burden of debt, realize the dreams they studied hard to achieve, and grow their retirement savings."
The plan was met with some criticism as some said it undercuts the purpose of a 401k and makes it even harder to save up for retirement and plan for the future. The brokerage firm Fidelity Investment estimates that adults aged 20 to 29 have around $11,800 in a 401k.
Experts downplayed the proposal's benefits for young adults already saddled with high amounts of debt.
"They're already behind the financial eight ball," Moody's Analystics economist Mark Zandi told MarketWatch. "They're not preparing anywhere close to previous generations at this point in their life cycle for future needs. Retirement is a long way off, but they need to start saving early on to be prepared and they're just not going to be prepared if they take that money to pay down student loan debt."
Federal data shows that the share of student debt has doubled over the past decade from $700 billion to $1.6 trillion, overtaking credit cards and car loans as the biggest share of debt Americans hold. The average college student graduates with at least $30,000 in debt, CNBC reported.
Just over half of people who started attending college in 2018 took on debt to support their endeavor for a degree, according to the Federal Reserve.
Democratic presidential candidates have rolled out proposals of their own to confront the problem. Sens. Bernie Sanders and Elizabeth Warren, both frontrunners, have proposed either eliminating or drastically cutting the amount of student debt in the United States with a slate of new taxes.