Maintaining student loan deductions the right move
The U.S. Congress has reconciled the differences between the separate tax legislation that passed the Senate and the House of Representatives. One provision of the wide-ranging tax reform bill maintain the student loan interest deduction. Borrowers can continue to deduct up to $2,500 in interest payments made on federal and private student loans on their federal income tax returns. In my view, that is a sound decision based on the following data.
The U.S. has a major student debt loan crisis. The average student loan debt at graduation has risen rapidly over the last two decades. Recent data shows that a full two-thirds of college students left school with debt and that debt, on average, totaled a burdensome $35,000. The magnitude of the crisis cannot be overstated. Student loan debt surpassed total credit card debt in 2010, exceeded auto loans in 2011 and climbed to the $1 trillion mark in 2012. For an increasing number of students, repaying their student loans has become a lifetime struggle.
The financial weight of student loans has had a deleterious effect on the U.S. economy. It has delayed household formations — the rate is half of what it was a mere seven years ago. An increasing number of students have been forced to return to the nest and live with parents.
Thus, with that backdrop in mind, the Congress made the right call maintaining the student interest deductability provision. In these difficult financial times, recent grads need to be thrown a life preserver, not a cinder block.