A lottery to pay off student loans? N.J. lawmaker proposes it

Rutgers-Newark Class of 2015 Graduation (PHOTOS)

The Rutgers-Newark Class of 2015 graduated at the Prudential Center on May 18.

(Jessica Mazzola | NJ Advance Media for NJ.com)

TRENTON -- A New Jersey lawmaker says the state should try something novel to help people climb out of all that debt from their college days: set up a lottery in which the winning tickets pay off student loans.

State Assemblyman John Burzichelli (D-Gloucester) on Monday introduced legislation (A4631) that would make New Jersey the first state in the country to establish a lottery in which the winnings would go exclusively to college debt.

"Any vehicle that could provide some relief it seems to me it's worth talking about,' Burzichelli said, adding that he had been approached by an attorney representing people interested in starting such a business in New Jersey.

"We have people graduating from universities with just too much on their shoulders," he said. "And that hampers them from doing other things when they reach the workforce."

There's nothing to stop those saddled with student debt from playing the regular lottery. But by its nature, Burzichelli said, the pools in a student loan lottery would be likely be smaller and the chances of winning greater.

Under the legislation, the lottery could be operated by a private company under contract with the state, and the drawings would be conducted by the New Jersey Lottery Commission. Any student -- past or present -- would register information about his debt to the lottery in order to play. A benefactor could purchase a ticket on behalf of a student.

Seventy percent of New Jersey students who graduated in 2013 had debt, according to the legislation -- the fourth highest rate in the nation.

"The student loan crisis is ripe for a market-based solution to mitigate adverse effects," the legislation says.

Tickets could not cost more than $3 each and would be available online. A student would not be allowed to spend more than the equivalent of 15 percent of his or her debt on the tickets.

If a student were to win a pot that exceeds his debt, other students would be chosen to receive the rest of the money.

And 25 percent of the pot would go to the company running the lottery.

Burzichelli said that although he's already introduced the bill, he still plans on working out more of its specifics.

"It would provide a vehicle for people to help other people in a way that could be pretty engaging," he said.

But Natalia Abrams, executive director of the Los Angeles-based advocacy group Student Debt Crisis, wasn't betting on Burzichelli's idea.

"Gamble to pay off your student loan? It's all kinds of wrong," Abrams said. "I think that if they can afford 15 percent of what they owe they should just pay it to their student loan servicer."

Abrams also said it's unclear if the lottery winners would owe a large amount in taxes. Lottery winners in New Jersey have to pay state and federal taxes on their prizes.

"If an $80,000 loan is paid off, who is paying the taxes? Those could be very high tax bills for those who are very low-income. This isn't extra money they're winning like a regular lottery," she said. "Even if they got their student loan paid off, they might have 20 or 30 percent of taxes to pay off."

Under the New Jersey Constitution, proceeds from any state-run lottery are dedicated to "state institutions and state aid for education," and cannot be spent on prisons or juvenile detention facilities. Burzichelli's bill leaves it up to the state Treasurer to decide where any proceeds from the student debt lottery would be spent.

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Matt Friedman may be reached at mfriedman@njadvancemedia.com. Follow him on Twitter @MattFriedmanSL. Find NJ.com Politics on Facebook.

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