A proposed tax plan from the U.S. House Republican caucus would remove certain tax credits and deductions that aid college students.
The removals are part of a nearly $1.5 trillion GOP tax cut and reform package passed by the U.S. House Ways and Means Committee on Thursday. The two provisions give college students the opportunity to acquire a maximum benefit of up to $2,625 per year in tax-savings.
The bill nixes the Student-Loan Interest Deduction, which allowed students to deduct up to $2,500 of loan interest paid during the fiscal year, and the Lifetime Learning Credit, which lets students earning less than $65,000 recoup up to 20 percent of their tuition — up to $2,000.
“It is too early to speculate on what might happen and the overall impact to students,” said Tina Falkner, director of student finance at the University of Minnesota. “If the tax benefits really were eliminated, it would have an impact on our students … as it would for many other students and families across the country.”
According to the Joint Committee on Taxation, the removal of the student loan interest deduction would save the federal government $11.9 billion over the next five years.
“It seems like [the provisions are] not a good idea … and why do [the two provisions] that probably aren’t that significant compared to the entire bill, need to be there in the first place?” said Rep. Bud Nornes, R-Fergus Falls, chair of the MN House Higher Education Committee.
The Lifetime Learning Credit, a benefit which can be claimed by students every academic year for tuition payments, would be replaced in the GOP bill by an expanded American Opportunity Tax Credit. The AOTC, which limits the full $2,000 benefit to only four years of school, would only provide students $1,000 for an optional fifth year.
During the University’s 2016-17 academic year, 4,362 bachelor degree recipients graduated with student loan debt — representing 57 percent of the graduating class. And a total of 27,155 undergraduate students received some form of financial aid including: gifted aid, student loans or work study programs.
Sen. Rich Draheim, R-Madison Lake, vice-chair of the Minnesota Senate Higher Education Finance and Policy Committee, said the removal of the provisions won’t be problematic if students keep their spending down.
“Part of [student spending] is being fiscally responsible to begin with. You don’t buy a new car while you’re in college, you don’t have an expensive apartment, you don’t go on vacation, you buckle down,” Draheim said. “That would be my advice to [students] instead of worrying about a few hundred dollars in tax savings.”
Graduate students, who receive tuition waivers and annual living stipends, would also be required under the new bill to report their tuition waivers and stipends as income, increasing their tax burden.
“It could be a huge burden on graduate students,” said Rep. Jennifer Schultz, DFL-Duluth, a University of Minnesota - Duluth economics professor and member of the Minnesota House higher education committee. “They are taking money from the wrong places. [The GOP] are helping corporations and the very wealthy at the expense of middle and low-income families.”