Senator Rand Paul says you should pay for your student loans with your 401k. Paul’s new legislative proposal, the HELPER Act (Higher Education Loan Payment and Enhanced Retirement), would allow benefits like tax-free money for college, tax-free employer-sponsored plans, no cap on student loan interest deduction, and many others. Essentially, it would allow students and parents to withdraw retirement funds to settle expenses for college.
The act “would allow Americans to take out up to $5,250 from a 401(k) or IRA tax- and penalty-free each year to pay for college or make monthly student loan payments,” explained CNBC.
According to Forbes, “Paul seeks to reshape the way people save and pay for higher education, driven through tax and savings incentives.” He notes that “the current student loan interest rates can be as high as 7% for graduate students and parent borrowers.” Student loan refinancing rates, on the other hand, have dropped to below 2%.
Paul’s critics will likely note objections such as removing money from a retirement account for any purpose that is not related to retirement may not be a wise financial move; many students cannot both save for retirement and pay off student loans; and the annual amount may not be enough to help borrowers make a meaningful impact.