Proposed Tax Plan Will Affect College Students
January 31, 2018
On November 16th 2017, a proposed tax plan by the GOP was made and that looks to have a hold on students’ everywhere.
In the house of Representatives, the bill includes a 1.5 trillion tax cut and will eliminate any tax breaks, which leaves a big impact on students’ and parents’ money.
The House bill would repeal the student loan interest deduction, which allows student loan borrowers who make up to $65,000 and married couples who make up to $130,000 to lower their taxable income by $2,500. This deduction allows people with student debt to save up to $625 a year. In 2015, over 12 million borrowers deducted the interest on their student loans. Increasing the financial burden on student loan borrowers could make student loan repayment impossible for millions of Americans. Currently, over 44 million Americans hold a total of $1.4 trillion in student loan debt. It takes the average student debt borrower 20 years to pay off their loans, and over 3,000 people default on their federal student loans every day.
The parents of full-time college students are often able to receive the American Opportunity Tax Credit. The American Opportunity Tax Credit is available for married couples who earn up to $160,000 and single parents who earn up to $80,000. The credit gives these families up to $2,500 annually for every child enrolled in college. Currently, families can claim this credit for four years of a child’s education.The House plan would allow parents to claim this benefit for a student’s fifth year but would decrease the value of the benefit. It also would eliminate the Lifetime Opportunity Credit which allows students who attend college for more than five years to claim an annual $2,000 benefit.
The proposed plan makes several changes to the ways Americans would be able to save for college. As The Tax Cuts and Jobs Act would ban people from contributing to college savings accounts called Coverdell Saving Accounts, and would convert Coverdell account into 529 plans. Coverdell Saving Accounts allow families to deposit $2,000 per beneficiary per year. These funds can then be withdrawn tax-free if used for qualified education expenses including elementary school, secondary school and college. Financial planner Clint Haynes tells Time, “529 accounts can only be used for college, while the Coverdell can be used for both college and private school.” The bill also allows unborn children to be named the beneficiary of a 529 plan.
Economics teacher, Chris Wilson says said, “This will be bad for all students and their parents’ wallets, especially for those that have or need financial assistance.”
While the wallets of parents and students everywhere will be more strained, with this new tax, it is a strain that will impact all graduating seniors and seniors to come.