What the new tax reform bill means for student loans

by Bobby Hilliard | Dec 05, 2017

There’s an integral section of the new tax proposal buried amongst the updates that has folks on Capitol Hill talking: the effects of the bill on higher education. As it stands, the new tax code overhaul is an effort to simplify how people pay into the system and how tax breaks work out for every tier of taxable income.

The continued arguments about the national debt and how we approach the ceiling, the funding of government, and how we amend it are frequent battleground topics, even for members of their own parties.

From billionaires, the middle class, to working farmers, there are bright spots and dark clouds within the proposal and likely will need a lot of bipartisan support and compromise to pass the majority, and rightly so. The current plan doesn’t offer the kinds of breaks that specific demographics rely on – namely highly educated students.

The bill passed the House of Representatives, but is currently under substantial debate in the Senate thanks to the 1.5 Trillion corporate tax cut, which eliminates a plethora of individual tax breaks for the average student. The Committee for a Responsible Federal Budget and the American Council on Education have been quoted as predicting the shift in the tax code could affect students by $65 billion over the next decade.

HOW THE PROPOSED CHANGES AFFECT THE MIDDLE CLASS

The way the current deduction is structured is that it allows student loan borrowers making around $65K and married couples making up to $130K to lower their taxable income by $2,500. Because of this deduction, the average borrower saves almost $700 a year. For a lot of folks, that $700 is critical. Erasing the ability to write off that cash could have severe implications for a segment of the working population when student loan repayment is already frustrating, considering over 44 million people are handcuffed to 1.4 TRILLION dollars of student loan debt.

With defaults skyrocketing, late fee’s in the thousands stacking up; the government is playing a dangerous fiscal game. Even parents who want to plan for their children’s futures are now burdened with new guidelines as to how they can save. Instead of a smooth plan for college saving through the ubiquitous Coverdell Savings Account, the new account would be called a 529 plan. The rub here is that currently, families can deposit $2K annually and withdrawn tax-free so long as they’re used for education-related expenses.

The 529 plan only allows for college expenses instead of the Coverdell, allowing an investor to put their money toward any schooling such special classes or even just enrolling one of the kids into a private high school. The Coverdell at its core works as a place catch-all for any, and all school expenses no matter the grade.

BUT, WAIT THERE’S MORE

For parents with full-time college students, there’s the American Opportunity Tax Credit which may take advantage of it’s increased financial ceiling. Currently, married couples making less than $160K or a single parent making under $80K can get a tax credit that gives them $2,500 annually for each child in college. In the new version of the tax plan, this goes the way of the Dodo by way of a decreasing annuity.

Even worse, for Graduate students, the tax plan is a proverbial kiss of death thanks to its decrease in benefits for anything after the fifth year of college and also ends the Lifetime Opportunity Credit. This credit allows students who go to school more than five years to get a $2K credit on their taxes, considering they worked to be doctors, teachers or just care about the deeper meaning of education.

Those students who want a graduate degree will pay more taxes than some small businesses. Grad students would see their taxes increase by a whopping 400%. Typically when a grad student is accepted by a university, many of the students sign tuition waivers – this allows the student to earn a free education but also expects them to work at the university. The tax bill would tax this work as income, despite having any money to account for the work and essentially crippling the possibility of earning a Ph.D.

BETWEEN THE LINES OF FISCAL RESPONSIBILITY

Considering most graduate students tend to be politically engaged at a much higher rate than the national average, this move feels slimier than it probably should. Most people who know how the tax code works along with the student loan debt problem agree across the board that we need to forge some smarter paths, but not like this. Cutting corporate taxes on the backs of college students isn’t fair.

What about the college staff, surely they’d be ok in this literal mess, right? They’d get hit, too. Anyone on a college staff, including cashiers, janitors, IT admins – anyone, who uses a benefit to send their kids to the school, will see their credit taxed as income.

State schools aren’t the only ones feeling this burden, either. Private colleges will also see their student body deal with an upheaval in the tax code, too. More than 150 private colleges would receive a 1.4% excise tax on endowments valued at 100K per kid. Considering the call of government to keep things “small”, this is a hard line on private institutions whose student body draws heavily from the well of financial subsidies such as a Pell Grant.

Because of this tax excise would pummel colleges, colleges, in turn, would have to significantly reduce their support staff and hack scholarships down to balance overhead.

As it stands, the proposed bill made it through the House of Representatives but is currently taking a beating in the Senate thanks to more than one instance of murky language, but also dangerous policies like these.

ADOPTING THESE TAX AMENDMENTS INTO LAW COULD SIGNIFICANTLY AFFECT THE MIDDLE CLASS IN A TWO-TIERED FASHION:

The bill would hurt students in their long-term quest for higher education. Which also would impact the job market, making certain professions harder to fill vacancies. The other big piece of this sour-tasting pie is that most colleges are run by the middle class.
From the person walking the grounds to most teachers, the janitors, or even the folks keeping the grass green at the football field – those are middle-class jobs that could potentially be compromised thanks to a shift in economic balance in regards to school.
No matter the political affiliation, people care about this issue and people want the opportunity to get their kids through school, and not lose their shirt while doing so. If passed, this move would increase the student loan debt by 24 billion over the next decade.

The Senate should have rejected this bill. We can’t allow them to gut higher education. If there is an American value that’s given to all who live here, it’s that a good education should be available. Granted, the system isn’t perfect and we’re a long way off from student loan debt being solved, or all child being served across the board. We should be looking for ways to support education, not punish those who want to climb the educational ladder.

With the Senate passing their end of the bill, now we wait to see how the proposed tax cuts work as the two versions of the bill are fought between the Senate and House. Because as it stands, it’s easier to own a private jet with armfuls of write-offs than it is to fund higher education. This needs to be amended.

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by Bobby Hilliard | Dec 05, 2017

by Bobby Hilliard | Dec 05, 2017

by Bobby Hilliard | Dec 05, 2017