With the aggregate total of student loan debt having exceeded $1 trillion as of 2012, alongside persistently high unemployment and stagnant wages, the indirect costs of a college education continue to climb dramatically. With that in mind, New York Congressman Charles Rangel proposed a bill last month that would significantly re-work the student loan interest deduction on taxpayers’ federal income tax returns.
The bill seeks to help address what Rangel described as “a student loan debt crisis.” The proposal seeks to substantially raise the cap on the maximum student loan interest a taxpayer could deduct each year. Currently, than number stands at $2,500. Under Rangel’s bill, it would rise to $5,000. Additionally, the proposed bill would eliminate all income-based phase-outs from the deduction. In 2012, only single taxpayers making $60,000 or less, or married-filing-jointly filers making $125,000 or less, can claim the maximum $2,500 deduction. Single filers making more than $75,000, or married filers filing jointly who make more than $155,000, cannot claim the deduction at all under the present system.
“America has always … created an environment that fostered creativity and nurtured brilliance. It is this environment that we risk destroying if we turn our back on our education system and leave students to carry huge debts just to afford higher education,” Rangel stated on HuffingtonPost.com.
Rangel also pointed out that one-tenth of 2012 graduates who used student loans to finance their educations owe in excess of $63,000. Depending on interest rates, the annual interest on these loans could amount to $5,000 or more. The congressman’s office pointed out that eight education trade organizations, including the American Association of State Colleges and Universities, the American Council on Education, the Association of Jesuit Colleges and Universities and the National Association of Student Financial Aid Administrators, among others, endorsed the bill.
The modified student loan interest deduction also satisfied the public policy concepts behind tax deductions, according to Rangel. “The tax code is … used to promote behavior that we as a nation support, such as home ownership or charitable contributions. We need to encourage and support higher education.” Some opponents of the bill say it rewards the wrong behavior. By easing the burden on those who went into debt to pay for college, they argue, the increased deduction serves as a tax of sorts on those who saved for college instead of borrowing to pay college costs.
Income tax deductions and credits, and the statutes governing them, are often fluid. Regardless of the status of the student loan interest deduction, saving for college will lessen one’s burden after graduation. For the best advice regarding maximizing one’s tax deductions, and the most tax-favored education savings vehicles, consult the attorneys at Samuel C. Berger, P.C. and CPAs at S.C. Berger, P.C. Our attorneys offer students and families across New York and New Jersey advice and plans for how to minimize the tax burdens of obtaining a college education. To consult our attorneys and CPAs, contact us online or call (201) 587-1500 or (212) 380-8117.
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Proposed State and Federal Legislation Offers Tax Incentives for Technology Investment, Job Creation, and More, New York & New Jersey Business Lawyer Blog, April 25, 2013
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