coins spilling from jar and word student debt

Whether you're keeping up with your student loan payments or not, you soon might not have a choice—if a new plan touted by Sen. Lamar Alexander, R-TN, chairman of the Senate Health, Education, Labor and Pensions Committee, moves forward.

Alexander's proposal would compel employers to deduct student loan payments from employee paychecks based on one of two methods, according to a CNBC report: “one in which borrowers' monthly bills are capped at 10 percent of their discretionary income and another that spreads their payments out over a decade.” The change could affect as many as 40 million people.

A report from the Inspector General's office at the U.S. Department of Education found that Federal Student Aid had “not established policies and procedures that provided reasonable assurance that the risk of servicer noncompliance with requirements for servicing federally held student loans was mitigated,” and indeed failed to track identified instances of noncompliance, nor did it hold servicers accountable for failing to comply with federal loan servicing requirements.

And while there are plenty of reasons to overhaul the student loan system, Marketwatch reports that Alexander's proposal would chop down the current nine repayment plans that are currently available to borrowers into two, but while this “streamlined” system would “[guarantee] that borrowers would never have to pay more than 10 percent of their income that is not needed for necessities,” it would also take away the chance for borrowers to manage their own money.

In addition, the option already exists for federal student loan borrowers to repay those loans as a percentage of their income, but the system is so confusing and conflicted that it's tough for people even to learn that the option exists.

And consumer advocates just aren't having it. “It's a bad idea,” Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, is quoted saying in the report. Yu added, “The bottom line is it would force borrowers to prioritize their student loan payments above any other kind of expense they have.”

Try telling that to a hospital or doctor whose bills are on the verge of going into collection.

Yu also said in the report that under that plan, students could suffer because of a financial emergency, or because they have uneven income, necessitating having to save extra money when they can get it against times when their pay may be slim to none.

CNBC says that the National Consumer Law Center points out in a report that “For borrowers with tight budgets that need to be navigated on a monthly basis, forced automatic payroll withholding may mean diverting money away from rent, heat or food in order to pay their student loans.”

In addition, Barmak Nassirian, director of federal relations at the American Association of State Colleges and Universities, is quoted calling the proposal a “detour from real reform.” Nassirian adds, “This is a system rife with fraud and predatory lending,” and further says that some borrowers could have a problem with their employer knowing the details of their debt.

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