GOP plan twists knife for student borrowers

The removal of the student loan interest deduction under the Republicans’ new tax plan may seem inconsequential compared with the average sum of debt per borrower, but it will fan the flames of a growing student debt crisis.

  • By Sasha Padbidri
  • 07 Nov 2017
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As it stands, single borrowers making less than $80,000 a year, or married borrowers making below $160,000 and filing taxes jointly, can deduct up to $2,500 in interest payments from qualifying federal and private student loans as a way to reduce their taxable income. 

However, based on the special interest deductions proposed last week by the Republicans’ Tax Cuts and Jobs Act, this tiny concession to borrowers shouldering large amounts of student loan debt could soon be taken away.

The statistics for student loan debt in the US are sobering. According to data compiled in September by Student Loan Hero, 44m borrowers carry nearly $1.45tr in debt, while the average ‘class of 2016’ graduate has approximately $37,172 in student loan debt, a 6% increase from last year.

The interest deduction barely makes a dent in the massive debt burden of most borrowers, but removing it is another step in inflating the growing student loan bubble in the US. Not only does the move increase the amount of taxable income for borrowers, it also means that they could face another hit if the increase moves them into a higher tax bracket.

Separately, the deduction may not be felt in securitization right now, but according to data from the Internal Revenue Service (IRS), more than 12m people applied for the deduction in 2015 alone — meaning that a sizeable portion of Americans could feel the pinch if the deduction is removed, hurting their ability to repay debts.

The state of the student loan debt crisis is certainly not of the Republicans’ — or of President Trump’s — making. But his administration has done nothing so far to improve the accountability of student loan servicers, and seems to be more intent on dismantling protective measures for borrowers, such as the potential elimination of the Public Service Loan Forgiveness (PSLF) plan, which could put even more borrowers in danger of default.

While the removal of this deduction is less notable than other controversial measures in the tax plan, the people who are once again on the receiving end are fresh graduates, mostly millennials, and low income borrowers. And so the mountain of student debt will continue to grow.

  • By Sasha Padbidri
  • 07 Nov 2017

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3 BNP Paribas 5,093 18 8.66
4 Barclays 4,040 11 6.87
5 Lloyds Bank 3,615 14 6.15

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