New Presidents, new student loan policies.
Part of Trump’s tax plan eliminates the student loan interest tax deduction.
Under current law, taxpayers with income of less than $80,000 ($160,000 if filing a joint return) can deduct from their taxes the amount paid for interest on qualified student loans.
$2,500 is the most anyone can deduct under this provision, and the Trump plan doubles the standard deduction, from $6,350 to $12,700 for joint filers, which, obviously, makes up for more than what those folks could have deducted for student loan interest.
Over 44 million Americans have student loan debt, with average monthly payments at about $350. According to a 2011 analysis of IRS Statistics of Income data performed by the Association of American Universities, over five million taxpayers benefited from the student loan interest deduction.
These are people with income below $80,000, or $160,000 for married couples filing a joint return.
Other Student Loan Changes
During the presidential campaign, then-candidate Donald Trump said, “This (student loan) debt should not be an albatross around their necks for the rest of their lives. It’s not fair and we are going to fix it!”
Let’s assume ending the tax deduction for student loan interest was not what he had in mind.
So, the latest bad news on student loan debt.
You’ve probably heard the statistics: Americans owe over $1.4 trillion in student loan debt, spread out among about 44 million borrowers. That’s about $620 billion more than the total U.S. credit card debt. In fact, the average Class of 2016 graduate has $37,172 in student loan debt, up six percent from last year. . . .
- 44.2 million Americans with student loan debt
- Student loan delinquency rate of 11.2% (90+ days delinquent or in default)
- Average monthly student loan payment (for borrower aged 20 to 30 years): $351
- Median monthly student loan payment (for borrower aged 20 to 30 years): $203
Whether student loan interest remains deductible or changes will not have much effect on the problem outlined above.
Lots more of the problem is outlined if you read the whole article linked to above.
There was a bill introduced last Friday to remove the exception for student loan debt from being discharged in bankruptcy.
It will not pass in its present form, but it is a start.
When I started practicing bankruptcy law, in 1980, student loan debt was dischargeable, after a 7 year waiting period.
That was, 7 years after the first repayment was due, not counting any forbearance time granted by the lender during which payments were not due.
Restoring that provision would allow people to have a fresh start, to get back in the system, maybe buy a house, start a family.
Whether Congress changes bankruptcy law or leaves it the same, much of the student loan debt is not get repaid.
Student Loan Refinancing
Always keeping you up to date, this came out after I posted:
“We respectfully ask Treasury and the IRS to make clear the points provided above so that our state-approved programs can get to work providing more options and clarity to their borrowers,” the senators wrote. “Empowering nonprofits operating in the student loan space is one of the many tools we should unleash to better deal with the student debt problem.”