“The Senate is clearly signaling that they are hearing that these benefits matter a lot to people,” said Jessica Thompson, policy and research director at the Institute for College Access & Success (TICAS), a student advocacy group. “We look forward to seeing what else is included in the bill.
The deduction lets people repaying their student loans reduce their tax burden by as much as $2,500. Because borrowers can claim the deduction even if they choose not to itemize, the tax benefit is available to anyone paying interest on education debt. The higher the interest payments, the greater the deduction, which is why the benefit is especially valuable to people with large loan amounts. There are, however, income limits. Only single people earning less than $80,000 and married couples earning less than $160,000 can take advantage of the deduction.
Still, with 44 million people saddled with $1.3 trillion in education loans, the student loan interest deduction has grown in popularity. According to the Internal Revenue Service, more than 12 million people took advantage of the deduction in 2015. That’s just about 3 in 10 of the total number of Americans with student loans.
Terry W. Hartle, senior vice president of the American Council on Education, said the Senate provision preserving the deduction is “a welcome development for anyone concerned with the increasing levels of student indebtedness.”
The council, which represents colleges and universities, estimates that repealing the deduction would mean raising the cost of student loans by about $24 billion over the next decade.
Critics of the interest deduction say it is a poorly targeted way to help borrowers. Thompson noted that TICAS has previously proposed doing away with the tax benefit and redirecting the money to the American Opportunity Tax Credit, which helps low- and moderate-income students pay for college. Streamlining the jumble of tax credits, many of which are regressive in nature, would be welcomed, but not at the expense of students and families, she said.
“It makes no sense to gut the higher education tax benefits to pay for lower corporate tax rates,” she said. “The area is ripe for improvement, and there is agreement across the ideological spectrum on that, but it’s got to be done the right way.”