For some graduates, paying off their student debt just became a gamble. Student loan debt has become an increasingly pressing crisis in the past several years, with politicians all suggesting solutions to help graduates pay off their student loans. New Jersey Assemblyman John Burzichelli recently proposed a student loan debt lottery.
Burzichelli’s bill proposes a lottery in which only student loan borrowers and those buying on behalf and for the benefit of borrowers can participate. Participants are required to show proof of their student debt in order to enter. Tickets are available for purchase online and cost $3. Borrowers cannot spend more than 15% of their student loan debt in purchasing tickets, and their winnings may not exceed the amount of student loans that possess. If the borrower wins more money than he/she needs, the rest of the money will go to another borrower. The possibility of taxation on the lottery is still to be determined.
In New Jersey, a private company under contract with the state would conduct the lottery, and the New Jersey Lottery Commission would conduct drawings. Burzichelli’s idea may also expand to other states, which each state holding it’s own student loan lottery. The frequency and terms of the lottery are to be determined by the lottery’s popularity and success. Burzichelli stated, “Any vehicle that could provide some relief it seems to me is worth talking about.” According to Burzichelli, the lottery’s rules and exclusions would render smaller pools and therefore greater chances of winning.
While the student debt lottery is undoubtedly a novel way to combat the debt crisis, it seems counterintuitive for students and graduates to gamble away more money (up to 15% of their debt) to pay off their existing debt. The reality is, for every winner with a clean financial slate, there will be many more losers with more debt piling up with every lottery draw. Students that are thousands of dollars deep in debt, should think twice before spending on a lottery.
There are definitely other effective and risk-free ways to make your student debt more manageable. To lower your interest rates and monthly payments, graduates should look into student loan consolidation. Consolidating your student loans will combine multiple federal and private loans into one affordable payment. Your new student loan will also likely have a lower interest rate.
For more information about student loan consolidation, or to learn more about student loans, visit Credible.