GUEST COLUMNIST: Obligation on employers to pay student loans is unjustifiable

The government should be commended for having a program under which qualified students can receive government loans for higher education. However, it is wrong to place obligation on private employers with respect to the repayment of the loans. The loan contract is between the government – the Higher Education Students’ Loans Board – and the borrower, that is, the student and his/her co-signer(s). A private employer should have nothing to do with the repayment of a student loan unless he/she was party to the loan agreement in the first place.

The current law requires an employer to “notify the Board on employment of any person who is a holder of degree or diploma, within twenty eight days from the date on which such person is employed…deduct monthly installments of not less than fifteen percent of basic salary…treat deductions as statutory…inform the Board in writing of the status and rank of employment and any subsequent changes in the name, address, occupation, and salary of the person who is beneficiary…[and] remit every deduction from the beneficiary’s salary, wages, remuneration to the Board.” But that is not all. “The Board or its agent shall, after notifying the employer, have the power to inspect any relevant record of the employer for searching the beneficiaries’ information.” Seriously?

The Board must hold borrowers and their co-signers accountable for paying back the loans. But there is no justification whatsoever for holding a third party that has nothing to do with the application, approval, or issuance of the loan, responsible for its repayment. This is particularly the case for employers in the private sector. Repayments of an employee’s loans, whether to the government or to some other lender, must never be treated the same as the obligations to pay taxes or to contribute to the National Social Security Fund (NSSF).

If there was fairness and respect for the private sector, the employer would not have to set up a system for a loan repayment to the Board, even at the request of the borrower. It should be the borrower’s sole responsibility to inform the Board what his/her salary by forwarding a letter of appointment.

It should also be the sole responsibility of the borrower to let the Board know of any changes in his/her income and/or contact information. It should also be the sole responsibility of the borrower to send his/her repayments directly to the Board through his/her bank. By the way, while the Board might be the biggest provider of student loans, it is not the only lender. Should any organization that can prove that it has given individuals student loans place the same demands on employers?

Notwithstanding its good intentions, the “obligation of employer” demanded by the Board is an illustration of encroachment of the government on the rights of the private sector. Moreover, this law may actually hurt individuals who have received student loans from the Board. Rational behavior would suggest that to the extent possible, employers would avoid hiring individuals that owe student loans to the Board to avoid unnecessary transaction costs and scrutiny by the Board.

If we assume that, on average, individuals with higher education and without student loans come from families with higher incomes, it means they will have an added advantage in getting jobs. Again, to the extent possible, employers may avoid hiring people with degrees or diplomas. In other words, the law which is intended to ensure the repayments of loans to the Board may, inadvertently, actually be undermining the potential ability of the loan recipients to repay the loans.

The Board provides a vital service by administering student loans. The Board must also hold loan recipients fully accountable for repaying the loans. However, the burden and the legal responsibility placed on private employers is unjust and bad for the economy.

The columnist is a professor of economics, La Salle University, Philadelphia, Pennsylvania, U.S.A. ([email protected])