The connection between ‘House of Cards’ and Student Debt
I’m an avid fan of the series ‘House of Cards’, a political drama on Netflix, in which Frank Underwood (played by Kevin Spacey) and Claire Underwood (played by Robin Wright) use coercion, bribery and extortion to ascend to greater positions in the government. Each episode takes you deeper into the tangled web of lies they are weaving in their quest for power, and you can’t help but wonder when it will all come crashing down.
The Wikipedia definition of “House of cards” is a structure or argument built on a shaky foundation or one that will collapse if a necessary (but possibly overlooked or unappreciated) element is removed. If you look at the 250% increase in the cost of college tuition over the last 30 years, and the stagnant growth of income over the same time period, you get the feeling we are building our own house of cards on top of student debt. One that can collapse at any moment if we don’t do something about it.
College costs and median family income, 1982 to 2012
The Employer Participation in Student Loan Assistance Act
Student debt stands at $1.3 trillion, impacting over 40 million Americans and growing at a rate of $2,726 per second. According to a recent article published in the Wall Street Journal, about 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt. Many Americans would appreciate some form of student loan repayment assistance from their employers.
On October 29, 2015, Representative Rodney Davis from Illinois’s 13th congressional district, introduced a bill in the House of Representatives that would allow companies to make tax deductible contributions to their employees student debt. On January 20, 2016 Senator Mark Warner from Virginia, introduced a similar bill in the Senate.
Why does it matter?
One of the biggest concerns with employer student debt repayment assistance is that contributions aren’t tax deductible. Although the interest saved from helping employees pay down their student debt faster generally outweighs the taxes incurred, it’s still a tough pill to swallow since 401(k) matching contributions are tax deductible.
The bill, if passed, could represent one of the most revolutionary changes in the tax code, since the Revenue Act of 1978 which added section 401(k) to the Internal Revenue Code. The 401(k), originally intended to limit executive compensation, later developed into the primary tax-advantaged retirement savings vehicle for the United States, as companies exited the pension business in favor of a tax-sheltered, employee-driven retirement system.
Believe it or not, at one point the 401(k) plan was once looked at by employers with similar trepidation, because it WAS tax deductible! In 1980, Ted Benna dubbed the father of the 401(k), found a loophole in the tax code that allowed companies to match employee contributions in pre-tax salary reduction programs. As summarized in an article published by Inc., Benna called his interpretation of the 401(k) rule “Cash-Op,” and even tried to patent it. However, most clients were wary of the plan, fearing that once the government realized its tax revenue-reducing implications, legislators would pull the plug on it.
1980 just so happened to be an election year. Ronald Reagan had made tax deductible individual retirement contributions a component of his campaign and presidency, and in 1981 the provision was approved. However, the government soon realized how much revenue it was losing from untaxed contributions and made two attempts to invalidate 401(k)s in 1986—but by then it was too late. Strong public support and adoption ended any chance of repealing it. By 1990, assets in 401(k) plans surpassed $385 billion. By 1996, assets in 401(k) plans surpassed $1 trillion and by 2010, they surpassed $3 trillion.
We are at a similar crossroads in history. We are in an election year and student debt is a hot topic on the campaign trail. CNBC recently published an article with each presidential candidate’s stance on the student loan crisis. Now would be the time to take action in the hopes of getting any type of tax reform to happen. So far, the Senate bill has 4 bipartisan cosponsors, and the House bill has 20 bipartisan cosponsors (see complete list of sponsors below).
How You Can Help Make A Difference
I recently reached out to Representative Rodney Davis and asked him what we could do to get the bill passed. This was his response:
“Call your Congressman and Senators and urge them to become a cosponsor. The more members we have cosponsor, the more likely we can get it passed.”
If you want to see the Employer Participation in Student Loan Assistant Act passed, you can take action by tweeting your state senators to cosponsor the bill. You can find a list of senators and their Twitter handles here.
Tweet: @(insert your senators’ handle here) support S.2457 #America needs your help to pay off student loans #ourvoice
Complete list of bill sponsors
S. 2457: Employer Participation in Repayment Act of 2016
Sponsor: Senator Mark Warner [D-VA] (introduced 1/20/2016)
COSPONSORS [* = original cosponsor]:
Sen. Capito, Shelley [R-WV] – 1/20/2016 *
Sen. Thune, John [R-SD] – 1/20/2016 *
Sen. Ayotte, Kelly [R-NH] – 1/27/2016
Sen. Tester, Jon [D-MT] – 4/5/2016
H.R. 3861: Employer Participation in Student Loan Assistance Act
Sponsor: Rep Davis, Rodney [R-IL-13] (introduced 10/29/2015)
COSPONSORS [* = original cosponsor]:
Rep Ashford, Brad [D-NE-2] - 2/3/2016
Rep Bera, Ami [D-CA-7] - 2/26/2016
Rep Blum, Rod [R-IA-1] - 10/29/2015 *
Rep Coffman, Mike [R-CO-6] - 10/29/2015 *
Rep Crawford, Eric A. “Rick” [R-AR-1] - 12/8/2015
Rep Donovan, Daniel M., Jr. [R-NY-11] - 2/26/2016
Rep Garamendi, John [D-CA-3] - 10/29/2015 *
Rep Graham, Gwen [D-FL-2] - 10/29/2015 *
Rep Hurt, Robert [R-VA-5] - 2/11/2016
Rep MacArthur, Thomas [R-NJ-3] - 11/30/2015
Rep McSally, Martha [R-AZ-2] - 10/29/2015 *
Rep Moore, Gwen [D-WI-4] - 2/3/2016
Rep Murphy, Patrick [D-FL-18] - 10/29/2015 *
Rep Nolan, Richard M. [D-MN-8] - 10/29/2015 *
Rep Rouzer, David [R-NC-7] - 10/29/2015 *
Rep Stefanik, Elise M. [R-NY-21] - 2/26/2016
Rep Swalwell, Eric [D-CA-15] - 1/12/2016
Rep Tipton, Scott R. [R-CO-3] - 2/11/2016
Rep Wilson, Frederica S. [D-FL-24] - 12/15/2015
Rep Womack, Steve [R-AR-3] - 2/26/2016
Emeka is the founder & CEO of PeopleJoy, a financial wellness benefits provider. PeopleJoy helps companies recruit, reward and retain valuable employees through company contribution programs towards employee student debt.
Previously he founded and launched a mobile app publishing company that was acquired in 2015. Prior to that he worked as Director of Product at a fintech startup and as a Wall Street analyst. Emeka received his B.S. in Electrical Engineering from Rutgers University and his MBA from Harvard Business School.
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