The House of Representatives recently came out with a tax reform plan that imposes additional tax burdens on student borrowers. The three main elements to the proposal that would directly impact student borrowers are:
- Elimination of tax deduction for student loan payments. Currently, student loan borrowers who are paying their loans can deduct up to $2,500 in interest payments per year on their tax returns. As the borrower’s income increases, this tax benefit is phased out. The new House proposal would eliminate this tax deduction entirely. As a result, borrowers that have low to middle income will be paying higher taxes in addition to paying their student loans.
- Removal of tax deduction for tuition payments. Under current law, students or their parents can deduct certain tuition-related expenses on their tax return. The House proposal would eliminate this tax deduction which would increase the amount of taxes that must be paid by the student or parents.
- Imposing Public Service Loan Forgiveness taxes. The amount of a student loan that is forgiven can be treated as “taxable income.” This includes loan forgiveness obtained through Income Based Repayment (IBR), Income Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans. However, loans forgiven pursuant to the Public Service Loan Forgiveness (PSLF) program are not taxable. Many policy makers are diligently working to change the law so that ALL student loan forgiven balances are not taxable. However, the House proposal would eliminate the tax-free loan forgiveness currently afforded under PSLF. Thus, if the House proposal is passed, ALL federal student loans that are forgiven will be treated as taxable income.
The good news is that in a time where it is widely agreed that our student loan lending system is broken and student loan debt is a massive burden on the U.S. economy, the House proposal is unlikely to be passed anytime soon.
The “defender of the little guy,” DeLadurantey Law Office. LLC. handles student loan law matters and bankruptcy matters (Chapter 7 and Chapter 13) in Milwaukee, South Milwaukee, West Milwaukee, and Milwaukee County, including the municipalities of Bayside, Brown Deer, Cudahy, Fox Point, Franklin, Glendale, Greendale, Greenfield, Hales Corners, Oak Creek, River Hills, Shorewood, St. Francis, Wauwatosa, West Allis, and Whitefish Bay. The firm also can handle your debt negotiations, debt relief, and mortgage loan modifications. Contact DeLadurantey Law Office, LLC by phone: (414) 377-0518. Like us on Facebook.