GOP tax bill ends deduction for student loan interest

Maria Danilova
Associated Press

Washington — Millions of Americans would lose the ability to deduct up to $2,500 in student loan interest under the Republican tax bill, a proposal that education advocates say will make college less affordable.

But supporters of the measure say the loss will be offset by other provisions in the bill.

In a letter to top members of the tax-writing House Ways and Means Committee, the American Council of Education, a leading national higher education advocacy and research group, asked lawmakers to reconsider their plan keep the deduction for student loan interest.

“It is possible to offer tax relief to hard-working middle-class and lower-income Americans in a way that does not increase college costs and does not make a quality higher education less accessible,” ACE President Ted Mitchell wrote in the letter Monday. “We are eager to work with Congress to enact such legislation, but this bill heads in the wrong direction.”

The Education Department did not respond to a request for comment Tuesday.

In 2015, according to the most recent government data available, 12.2 million taxpayers took the student loan deduction, which phases out at higher incomes. Repealing the provision would mean that the cost of student loans for borrowers would increase by some $24 billion over the next decade, according to the group, which represents 1,600 public and private colleges and universities.

“It’s going to make student loan borrowing more expensive and as a consequence make higher education more expensive,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators.

Ben Miller with the Center for American Progress, a liberal think tank, said the deduction is more beneficial to those with higher incomes — but still below the income threshold — who tend to have bigger loans and pay more interest.

“We could improve these provisions,” Miller wrote in a blog post on Tuesday. “Instead, the House majority bill simply eliminates them to fund tax cuts that benefit corporations and the top 1 percent.”

But Jason Delisle, a fellow at the conservative American Enterprise Institute, said the provision was minor to begin with, resulting in an average tax reduction benefit of just $200 a year. Plus, other provisions offered in the tax bill, such as nearly doubling the standard deduction, would outweigh the loss of this provision, he said. The standard deduction — used by people who don’t itemize, around two-thirds of taxpayers — would nearly double to $12,000 for individuals and $24,000 for couples.

“So if you thought that the student loan interest deduction was good, this bill gives it to everybody and then some,” said Delisle. “They are cutting people’s taxes.”

Jessica Thompson, policy and research director at The Institute for College Access and Success, agreed with the need to streamline the “overlapping, confusing web of higher ed tax benefits,” but she challenged the notion that those with student loans would come out better off.

“Absolutely you cannot say that this is going to be a net increase for borrowers,” Thompson said. “There are so many things happening in this bill that you cannot absolutely say that this is a tit for tat.”

Thompson added that tax benefits are created not merely to help people save money, but to prompt certain economic and societal behavior, in this case to push more people to pursue higher education.

“Some people will be better off, some people will be worse off” with the bill, Thompson added. “But it will not use the potential to change and incentivize behavior in a specific way.”