If you’re still paying off a student loan, you probably claimed a deduction last year to take hundreds off your tax bill due to Uncle Sam.
But if Congress passes the GOP tax reform plan now in the U.S. House of Representatives, the deduction for student loan interest would disappear from federal tax forms. That would be a big change for more than 160,000 S.C. taxpayers who deducted student loans from their taxes in 2015, saving $180 million.
That would seem like bad news.
But those taxpayers might not notice if the rest of the House proposal passes into law too, says Donna Bobek Schmitt, an associate professor of accounting at the University of South Carolina.
Schmitt ran simulations of the House tax plan at different income ranges for single and married tax filers. “In every situation, their taxes were less by between $500 and $5,000” even after losing the college loan deduction, Schmitt said.
That’s because other changes in the tax plan would more than offset the lost deduction.
Schmitt’s simulations looked at filers with incomes of $50,000, $75,000, $100,000 and $150,000. Each came out ahead of where they would be under the current tax structure because of other changes in the plan, including increasing the standard deduction to $24,400 for married couples and $12,200 for single filers, up $12,700 and $6,350, respectively. Those changes would end up saving the taxpayers more than the maximum $2,500 deduction for their student loans, she says.
USC supports saving deduction
While Schmitt says those taxpayers would save money under the House tax plan, USC would still prefer the deduction stay in place.
Half of USC’s undergraduates now leave school without student loan debt, the school says. Still, the university prefers keeping the tax deduction in place.
“While that provision doesn’t impact the university directly, we support the position the Senate is taking on the matter, leaving the student loan interest deduction in place,” said USC spokesman Wes Hickman. “That provides benefit to our alumni who are working to repay their investment.”
Others worry the tax reform proposals could impact colleges’ bottom lines elsewhere – by cutting into financial aid or taxing university endowments.
An analysis by the House Ways and Means Committee shows the tax proposal could increase the cost of attending college by more than $65 billion over the next decade, by eliminating deductions for tuition waivers for graduate students, student loans and some donor contributions.
One official at Connecticut College told the Hartford Courant, “It just feels like an attack on higher education in general.”
USC’s Schmitt does worry about the proposal to eliminate tuition waivers for graduate students. The House GOP tax proposal would treat those waivers by a college as income to the graduate students.
“Most grads have between $20,000 and $30,000 waived,” she said. “It’s, basically, a scholarship.”