The tax deduction for student loan interest would be removed as part of sweeping tax changes proposed by House Republicans on Thursday.
The changes also call for levying a 1.4% tax on investment income earned by private colleges and universities with large endowments, which appears to include USC. The tax would not apply to public schools.
More than 12 million Americans deducted student loan interest on their tax returns in 2015, the most recent year available, according to data from the Internal Revenue Service.
Under current rules, borrowers can deduct up to $ 2,500 in interest paid on eligible federal and private student loans annually.
The deduction is known as the “above-the-line” deduction because it reduces the amount of income subject to tax, whether the taxpayer itemizes their deductions or chooses the standard deduction on their tax return.
The interest deduction on student loans is subject to income limits. Singles with adjusted adjusted gross income of $ 80,000 or more (and married couples jointly filing $ 160,000 or more) cannot claim it.
The average amount of interest deducted by qualifying taxpayers in 2015 was around $ 1,100, which saved $ 272 in taxes for someone in the 25% tax bracket, said Mark Kantrowitz, editor. from Cappex.com, a website devoted to college admissions and financial aid. .
Jason Delisle, a resident of the American Enterprise Institute who follows higher education, tweeted Thursday that the average savings for all taxpayers using the deduction this year is estimated at $ 202.
But whether borrowers contemplate a loss of these amounts is up to each taxpayer, as the Republicans Tax Cuts and Employment Act contains other proposals – including a near doubling of the standard deduction – that could offset the lost deduction with tax savings in certain situations. .
Conversely, the loss of the interest deduction on student loans would otherwise increase a taxpayer’s income, which could affect their tax liability in other ways.
âIt may turn out, at least during the first few years after graduation, that they benefit from a net reduction in their tax bill,â Kantrowitz said. âWhether it’s a wash or a benefit is hard to say without fully modeling itâ for each individual, he added.
Either way, the House plan was not right for Zachary Harrison, 26, who graduated from Ball State University in telecommunications in 2013 with $ 85,000 in student debt. He deducted $ 2,246 in interest on his federal income tax return last year.
“We get something so tiny to begin with [in tax savings] compared to total debt, and take that away seems, like, why? said Harrison, who is now working in post-production in Hollywood.
He said if the Trump administration’s goal was “everything to cut taxes, then why not keep it?” “
In their summary of the tax plan, House Republicans rejected the idea that eliminating the deduction and other education tax savings would make it more difficult for Americans to pay for schooling, saying the comprehensive plan “makes it easier for families to use tax benefits for the cost of education.” . “
But John Walda, managing director of the National Assn. of College and University Business Officers, said in a statement that the repeal of the interest deduction on student loans was one of the many reasons his business group “has serious concerns about a number of provisions” of the tax bill.
âPart-time students who take courses to acquire new professional skills will no longer be able to claim the education tax credit,â he said.
Walda also opposed the proposed excise tax on university endowments, saying it “will result in fewer dollars available for scholarships, student services, research, and college and university operating expenses.”
This tax would be levied on investment income net of private school endowments equivalent to at least $ 100,000 per full-time student.
The USC endowment had assets of $ 4.6 billion in its fiscal year ended June 30, 2016, according to the school’s latest financial report. But the endowment performed poorly that year, with its assets dropping 2.1%, so it looks like for that period, at least, the tax would have been a moot point.
Over the past decade, USC’s endowment has gained 5.5% on an annualized basis, the report notes.
“Imposing an excise tax on the endowments of private not-for-profit universities is a short-sighted decision that will only hurt students and their families – simply to fund the cost of tax reform,” said James Staten USC senior vice president and chief financial officer in a statement. declaration. âEndowments support student aid, student services, funding for teaching, research, laboratories, libraries and more. “
Ted Mitchell, president of the American Council on Education, an advocacy group for higher education, said the House plan as a whole “would discourage participation in post-secondary education,” would make the college “more expensive for those who enroll âandâ undermine the financial stability âof colleges and universities.
5.15 p.m .: This article was updated with a comment from USC.
This article was originally published at 3:55 p.m.