GOP tax plan would kill deductions on student loans

Taxpayers who claim deductions for paying student-loan interest will no longer be able to do so if the GOP's tax bill passes in its current form. The bill's proposals include eliminating this popular deduction.
By Mae Owen | Nov 07, 2017
Young adults with large student-loan debts might owe more in taxes under the GOP's tax-reform bill. Tax changes that House Republicans proposed Thursday include eliminating "special-interest deductions," one of which is the deduction a taxpayer can claim for paying interest on a student loan.

Republican lawmakers also called for a new 1.4% tax on the investment incomes earned by private colleges and universities' endowments. State schools would be exempt from this tax.

Current tax law allows an individual to get a deduction on up to $2,500 of student-loan interest that he or she paid in the previous year. More than 12 million Americans used this deduction when filing taxes in 2015, the last year for which IRS data is available.

The deduction's impact on taxes owed varies based on the individual's income and family size, according to Mark Kantrowitz, published of Cappex.com, a website that provides information on college admissions and financial aid. But he said that a single person in the 25% tax bracket can save an average of $272 on their taxes.

Removing this exemption might not raise every borrower's taxes, however. Kantrowitz said that other parts of the GOP bill, such as a proposed increase in the standard deduction might offset the loss of the student-loan deduction for some borrowers.

"It may work out, at least for the first few years after graduation, that they have a net reduction in their tax bill," Kantrowitz said. "Whether it's a wash or a benefit is hard to say without completely modeling this out" for each individual, he added.

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