That’s the gist of New Jersey bill A4631, which would create a student loan lottery in the state where the winner’s student loan debt is paid off.
This wouldn’t be a sweepstakes or contest where “lottery” simply refers to the winner being selected at random from a pool of entrants. And this isn’t using a portion of state lottery earnings to pay down selected residents’ loan debts. No, entrants would need to pay for a ticket (which would cost up to $3 each) in order to compete, and only loan borrower (or their “benefactors”) can enter.
In effect, it would be a bunch of people with student loan debt pooling their money together to pay off one single person’s debt.
The state legislator who introduced the bill seems to be well-intentioned.
“Any vehicle that could provide some relief it seems to me it’s worth talking about,” State Assemblyman John Burzichelli tells NJ.com. “We have people graduating from universities with just too much on their shoulders… And that hampers them from doing other things when they reach the workforce.”
He’s right, but is it a good idea to suggest that these same people — already weighed down by debt — should risk more money on a slim chance they’ll win?
Some 70% of undergraduate students graduating from New Jersey colleges in 2013 left school with student loan debt (the fourth-highest percentage in the country), and around 40,000 bachelor’s degrees were granted from those schools that year, meaning 28,000 students graduated owing money to lenders.
The average student loan debt in the state was slightly more than $28,000 in 2013, according to The Institute for College Access & Success. Since the operator of this proposed student loan lottery would retain 25% of the pool for itself, that means the state would need to raise more than $37,000 just to fund a single lottery winner.
Given that this sort of lottery would have a much smaller entrant pool than a typical state lottery, it would be tempting to try to game the system. If you owe $60,000 in student loan debt but can get your hands on $15,000 by selling your car, one might think about risking all that cash in an attempt to get your name on as many tickets as possible.
The legislation tries to minimize this by limiting the amount you could gamble on the lottery to 15% of your total student loan debt. That means the average New Jersey grad could still spend more than $4,000 on lottery tickets and come away empty-handed.
“Gamble to pay off your student loan? It’s all kinds of wrong,” Natalia Abrams, executive director of advocacy group Student Debt Crisis, tells NJ.com. “I think that if they can afford 15% of what they owe they should just pay it to their student loan servicer.”
Then there is the issue of taxes. Even though the payouts from the lottery would go directly to the student loan servicer and not to the borrower, it may still count as taxable income.
“Even if they got their student loan paid off, they might have 20 or 30 percent of taxes to pay off,” says Abrams.
by Chris Morran via Consumerist