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Words You'll Hear: Cuts To College Student Tax Credits

MICHEL MARTIN, HOST:

Let's talk more about those tax overhaul plans that the House and Senate are debating right now. As you can imagine, both bills are dense. And while you probably heard about some of the big issues they're wrestling with - the inheritance tax or state and local taxes and so on - there are a lot of other issues that will get a lot less public attention before the House votes on it this week.

So for our Words You'll Hear segment this week - now, that's where we drill down on a story by taking apart one of the words or phrases connected to it - we decided to highlight a part of the bill that you might not hear much about. So here are the words - student loans interest tax deduction. The House plans to cut this tax deduction, but the Senate isn't touching it. To help us figure out what we need to know, we're joined now by Danielle Douglas-Gabriel of The Washington Post. She writes about student finances and the economics of education. Danielle, thanks so much for speaking with us.

DANIELLE DOUGLAS-GABRIEL: Thanks for having me.

MARTIN: So what is the student loan interest tax deduction?

DOUGLAS-GABRIEL: So this is a tax deduction that lets anyone who has federal student loans deduct up to $2500 in the interest that they've paid on the loans for the year. Now, it primarily benefits people who have higher balance loans, which means they're paying more interest. But for the most part, it's a pretty minuscule amount of money that they're getting deducted off of their taxes.

MARTIN: So how much do most students taking advantage of this actually get from this deduction? And do we have any sense of how many people actually take it?

DOUGLAS-GABRIEL: So we have seen about maybe - some estimates saying about $200 per person on average in terms of the deduction. But it is being used by about 12 million people the last time the IRS checked, and that was in 2015. So that's about 3 in 10 borrowers. Now, we have about 44 million people with a total of, like, $1.3 trillion in debt. So 3 in 10 of those folks are being able to take advantage of this deduction.

MARTIN: So a lot of people take it, but they don't get a lot of money back for it, right? Some people might argue that's not a lot of money to fight about. So what do people say about this who defend it and who think it's important?

DOUGLAS-GABRIEL: Well, when you think about the amount of money people are paying on their student loans and the fact that so many people have student loans at this point, those couple of hundred dollars would be beneficial, especially if we see some of the eliminations of the state and local tax credits - deductions that people are very much up in arms about. And as a result, those kinds of deductions - like the student loan interest deduction - would be quite beneficial still.

MARTIN: Well, while we have you, what about other tax credits or tax deductions that students and families of students benefit from that could change in the House plan? Could you talk about that?

DOUGLAS-GABRIEL: Sure. So there is one particular deduction that a lot of graduate students are very concerned about. So, as it stands, graduate students who work as teaching assistants or research assistants typically have their tuition paid for by the school. Now, right now, that tuition is not considered taxable income. The House plan, however, would repeal an exclusion that would now make it possible for that money to be taxed. The Senate, however, does not want to touch that at all. So they're siding with the graduate students who have been very vocal about how this would harm them.

So you think about someone who, say, is getting a doctorate at Yale, for instance - or Princeton. They may be being paid maybe $28,000-$30,000 a year, but their tuition is worth about $40,000 a year. Right now, they would only pay taxes on that 30. But if the House had its way, they'd pay taxes on the full amount of their tuition and their stipend. So that's, you know, quite concerning for a few folks.

MARTIN: That's Danielle Douglas-Gabriel. She's a reporter at The Washington Post. She covers the economics of education and how students deal with debt. Danielle, thanks so much for being with us.

DOUGLAS-GABRIEL: Thank you. Transcript provided by NPR, Copyright NPR.