We can’t help but feel a little wistful at the yesterday’s passing of line 33, the Student Loan Interest Deduction. We were happy, gleeful even, to get rid of Educator Expenses, but we’ve been wondering if we were too hasty with Loan Interest.
Why the long faces, you wonder?
- Loan Interest had a greater impact on taxes for approximately the same paperwork burden as Educator Expenses.
- It was much less vulnerable to fraud and manipulation by ne’er-do-wells. Since your lender reports how much interest you pay to the IRS, it is difficult to scam the credit.
- It gave us $87.
Still, we think we made the right decision for a couple of reasons. There are already 3 other seperate provisions in the tax code that address the obscene costs of college (Hope, Lifetime Learning Credits and Tuition and Fees Deduction). If policymakers are determined to give tax incentives towards higher education, we sure wish they’d expand the ones they’ve already got instead of adding more snarl to the tax code.
We also didn’t talk about the phase-out yesterday. The tax deduction slowly diminishes for people who make more than $55,000/yr, disappearing entirely at $70,000. This frustrated poster makes a very good point: Heavy borrowers in professional school will make too much money to qualify for the deduction once they graduate.
Doctors and lawyers, for example, tend to have higher student loan balances right out of school, but also far more income than would qualify them to take a deduction. This is the Catch 22 of the student loan interest tax break.
The only people who are significantly (more than $87) helped by the Interest Deduction are those who pursue an expensive graduate degree only to work low wage jobs upon graduation. That isn’t behavior the tax code should encourage.
