The tax deduction for student loan interest would be eliminated as part of the sweeping tax changes proposed by House Republicans on Thursday.
The changes also call for levying a 1.4% tax on the investment income earned by private colleges and universities that have sizable endowments, which would appear to include USC. The tax would not apply to state schools.
More than 12 million Americans deducted student loan interest on their tax returns in 2015, the most recent year available, according to Internal Revenue Service data.
Under current rules, borrowers each year can deduct up to $2,500 of interest paid on qualifying federal and private student loans.
The deduction is known as an “above-the-line” deduction because it reduces the amount of income subject to tax regardless of whether the taxpayer itemizes their deductions or chooses the standard deduction on their tax return.
The student loan interest deduction is subject to income limits. Singles with a modified adjusted gross income of $80,000 or more (and married couples filing jointly with $160,000 or more) cannot claim it.
The average amount of interest that was deducted by eligible taxpayers in 2015 was about $1,100, which saved $272 in taxes for someone in the 25% tax bracket, said Mark Kantrowitz, publisher of Cappex.com, a website devoted to college admissions and financial aid.
Jason Delisle, a resident fellow at the American Enterprise Institute who tracks higher education, tweeted Thursday that the average savings for all taxpayers using the deduction this year is estimated at $202.
But whether borrowers are looking at a loss of those amounts depends on each taxpayer, because the Republicans’ Tax Cuts and Jobs Act has other proposals — including a near doubling of the standard deduction — that could offset the lost deduction with tax savings in certain situations.
Conversely, losing the student loan interest deduction would otherwise raise a taxpayer’s income, which might affect their tax liability in other ways.
“It may work out, at least for the first few years after graduation, that they have a net reduction in their tax bill,” Kantrowitz said. “Whether it’s a wash or a benefit is hard to say without completely modeling this out” for each individual, he added.
Regardless, the House plan did not sit well with Zachary Harrison, 26, who graduated with a telecommunications degree from Ball State University in 2013 with $85,000 in student debt. He deducted $2,246 in interest on his federal tax return last year.
“We get something so minuscule to begin with [in tax savings] compared with the total debt, and to take that away seems, like, why?” said Harrison, who now works in post-production in Hollywood.
He said that if the Trump administration’s goal is “all about reducing taxes, then why not keep that?”
In their tax plan summary, House Republicans rejected the notion that eliminating the deduction and other education tax savings would make it more difficult for Americans to afford schooling, saying the overall plan “makes it easier for families to use tax benefits toward the cost of education.”
But John Walda, chief executive of the National Assn. of College and University Business Officers, said in a statement that repealing the student loan interest deduction was one of several reasons his trade group “has serious concerns with a number of provisions” in the tax bill.
“Part-time students who take classes to acquire new job skills will no longer be able to claim an education tax credit,” he said.
Walda also objected to the proposed excise tax on university endowments, saying it “will result in fewer dollars available for scholarships, student services, research and college and university operating expenses.”
That tax would be levied on the net investment income of private-school endowments equal to at least $100,000 per full-time student.
USC’s endowment had assets of $4.6 billion in its fiscal year ended June 30, 2016, according to the school’s most recent financial report. But the endowment performed poorly that year, with its assets dropping 2.1%, so it appears for that period, at least, the tax would have been a moot point.
Over the last decade, USC’s endowment has earned 5.5% on an annualized basis, the report noted.
“Imposing an excise tax on nonprofit private university endowments is a short-sighted move that will only harm students and their families – simply to finance the cost of tax reform,” James Staten, USC senior vice president and chief financial officer, said in a statement. “Endowments support student aid, student services, funding for instruction, research, labs, libraries and much more.”
Ted Mitchell, president of the American Council on Education, a higher-education advocacy group, said the House plan overall “would discourage participation in postsecondary education,” make college “more expensive for those who do enroll” and “undermine the financial stability” of colleges and universities.
5:15 p.m.: This article has been updated with a comment from USC.
This article was originally published at 3:55 p.m.