Sen. Rand Paul (R-Ky.) introduced a bill that aims to help Americans “more quickly and easily” pay off their student loan debt, according to release from his office.
The bill, called the Higher Education Loan Payment and Enhanced Retirement (HELPER) program, would allow people to use money from their 401 (k) or individual retirement accounts (IRA) to pay their college tuition or student loan debt, Paul said on Tuesday.
“So, let’s say you’re already paying your student loans off—you’re paying them with after-tax dollars. This would allow you to take that money, put it in the 401(k), and pay with pre-tax dollars,” Paul told Fox News.
Individuals could withdraw, tax and penalty free, up to $5,250 per year from their employer pension plan or IRA. Withdrawals from either account are normally taxed.
“But also, if you’re saving…it lets each parent put $5,000 in and the child put $5,000 in for about $15,000 every year that’s tax-free. So, essentially, college is going to become tax-free. Which, depending on your tax bracket, is about a 20-30 percent reduction in the price of college,” Paul added to the broadcaster.
Last year, the average college student in the United States owed almost nearly $30,000 after graduating, reported Fox, citing the The Institute for College Access & Success.
“Instead of empowering the federal government to increase its involvement in education, which will only raise costs even higher and further lower the value of our dollars to cover them, we can empower the American people to reduce the burden of debt, realize the dreams they studied hard to achieve, and grow their retirement savings,” the news release stated.
Paul also said the tax-free tuition payment system has a higher probability of passing over what Democrats have proposed—eliminating college debt in general and give free college education.
The Democrats’ proposal would require heavily taxing working class and middle class Americans, Paul said, though that has been denied by Democratic senators.
“I think this actually has a chance of passing. Free college education—which isn’t really free—has no chance on Capitol Hill,” he said.
