How the New Tax Bill Will Affect Student Loan Borrowers
Dec 20th, 2017 @ 2:52 PM by Amber Nelson
U.S. student loan borrowers will not see increased taxes under the new tax bill being sent to President Donald Trump, a breath of fresh air for those already under a heavy debt burden.
“The Senate tax bill represents a significant improvement over the measure passed by the House,” said Ted Mitchell president of the American Council on Education in statement. “We are especially pleased that the Senate recognizes the importance of education benefits that help millions of middle- and lower-income students and families finance a college education. We hope that any final legislation will leave these critically important benefits in place.”
One of the things left unchanged by the new tax bill is the student loan interest deduction. It allows taxpayers to reduce their taxable income by up to $2,500 for those in the 25% tax bracket. With the average student loan interest deduction totaling $1,100 as of 2015 for that bracket, borrowers will continue to save roughly $270 a year. What is more, the deduction is applicable for even those who do not file itemized tax returns.
Another important tax benefit left untouched is the tuition waivers for graduate assistants and other university employees. These will continue to be untaxed keeping life a little less complicated for graduate students and Ph.D. students who qualify for free or reduced tuition.
Also left intact are student loan tax benefits like the Lifetime Learning Credit, the American Opportunity Tax Credit, and tuition expenses deductions.
One of the only changes made to the tax code that affect student loans is the removal of a tax that would be charged on loans that were forgiven in the event of a student death or permanent disability.
The new tax bill changes will not go into effect until the 2018 tax year.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.