How the Tax Bill Affects Students and Families Paying for College

How the Tax Bill Affects Students and Families Paying for College

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The tax legislation that House Republicans proposed last week includes several changes that could affect student loans: the ability to deduct the interest on your loan would be eliminated; tuition paid by an employer would become taxable; and three existing tax breaks would be consolidated into one.

It’s hard to immediately tell how any one person would fare because of the wholesale change across the entire tax system. For example, while some part-time students would lose a popular tax break because they don’t take enough classes to qualify, other individuals may see their tax burden fall because of a significant increase in the standard deduction.

There are other changes as well, and the impact will vary depending on your situation. These two scenarios — calculated by Jackson Hewitt, the tax service — illustrate how much taxpayers would owe under the current system, and how their tax bill might change if the Republican plan becomes law.






A new college graduate earns $40,000 a year and owes $35,000 in student loans.

The loss of the student loan interest deduction is offset by the family flexibility credit and the near doubling of the standard deduction.

Under proposed new tax plan:

A couple filing jointly with $150,000 in total income have two children. The older child is in college. Tuition is $30,000: $10,000 is paid from savings, $10,000 from current income, and the couple and child each take $5,000 in federal loans.

Although taxable income is lower under the current system — and they lose the student loan deduction — the higher standard deduction, flexible family credits and a lower effective tax rate lower their overall tax bill.

Under proposed new tax plan:

Additional

child tax credit

American

Opportunity

tax credit

A new college graduate earns $40,000 a year and owes $35,000 in student loans.

The loss of the student loan interest deduction is offset by the family flexibility credit and the near doubling of the standard deduction.

Under proposed new tax plan:

A couple filing jointly with $150,000 in total income have two children. The older child is in college. Tuition is $30,000: $10,000 is paid from savings, $10,000 from current income, and the couple and child each take $5,000 in federal loans.

Although taxable income is lower under the current system — and they lose the student loan deduction — the higher standard deduction, flexible family credits and a lower effective tax rate lower their overall tax bill

Under proposed new tax plan:

Additional child tax credit

American Opportunity

tax credit





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