Student loan payments should NOT be subject to the 10% IRS penalty for early withdrawal of IRA funds.
Currently, early IRA withdrawals are NOT subject to the 10% penalty if those withdrawals are used for direct tuition payments. But if a student isn't tax-savvy, and waits until after graduation to withdraw IRA funds to pay down her student loans, those withdrawals ARE subject to the 10% penalty. Don't punish students for not being tax-savvy.
IRA withdrawals used exclusively to pay student loans should qualify for the Education Exception to the Additional Tax on Early IRA Distributions, and should NOT be subject to the 10% IRS penalty on early IRA distributions. Please reference Pages 56-59 of the following IRS document for context: http://www.irs.gov/pub/irs-pdf/p970.pdf