Repaying Student Debt/Building Wealth in First Jobs: Health Savings Accounts & ESOP/401(k)

Posted by Walter Barry on 16 Sep, 2013 In Education, Health Care, Work

What is the solution for: 6.7 million youth disconnected from work and school, official unemployment at 15.6% (for those actively seeking jobs), and student debt now guaranteed by US taxpayers over $1 trillion ($26,000 average/borrower)?¹ 1. Health care consumer responsibility and health savings accounts that permits pre-tax student debt repayment.
2. Employee stock ownership and/or aggressive 401(k) matching with federal income tax credit up to capped amount.

The Wall Street Journal story highlights the challenging situation of millions of workers in their 20s with or without a college degree. The highlighted individual dropped out of college to earn a living and help repay student debt without incurring more debt. He earns $25,000/year in a St. Louis area supermarket clerk job at a great employer, has $26,000 of student debt, and enjoys employer-provided health benefits as a member of the local labor union.

Below are key solutions to repay student debt and allow all workers to generate wealth over a long career.

1. Employers and state insurance exchanges should mandate young workers select a high deductible health savings account so young workers are motivated to stay healthy and save their premium-pass through to their savings account. Individual premium pass-through is the portion of a health insurance premium that goes directly to the individual’s health savings bank account while the remainder goes to the insurance company. The 2013 federal pass-through is roughly average $1-2,000 today against a $6,000 average individual premium cost for a high deductible policy where the individual pays the first $5,000 of health costs! The individual should be able save closer to $3,000 in pre-tax savings.
2. Employer benefit managers should demand maximum premium pass through with third party health insurance offerings especially for under 30 workers so they can generate maximum health savings.
3. Allow individuals to repay student loans out of their health savings account or 401(k) programs.
4. Allow employers to match employee 401(k) or ESOP contributions 100% up to $8,000/account using refundable tax credits. Think of progressive refundable tax credits for 401(k) matching for lower wage workers.
5. Roll-out the work-related Ownership solutions in my Ownership at Work Solutions link.

Below you can see the compound capital appreciation if a worker invested $10,000 today as well as the $10,000 inflation-adjusted 401(k) limit that could include an employer match (maybe $5,000 worker, $5,000 employer). This is a powerful work-based path to financial independence, greater personal freedom, and a limited government in our day to day lives.