The Senate Finance Committee on Tuesday discussed ways to use the tax code to help reduce the nation’s $1.2 billion student debt burden.
According to a Tax Policy Center study, the share of households with student loans rose from 9% in 1989 to 19% by 2010, and inflation-adjusted median student debt rose by more than 50%.
Senate Finance Committee Chairman Ron Wyden, D-Ore., said the committee needed to simpify tax incentives to three credits or deductions that are user-friendly. This more streamlined approach would be based on a few key goals: saving, covering current costs and easing the burden of loans.
“The crazy quilt of tax benefits and aid programs on the books today doesn’t get that job done,” he said. “…It now takes at least 36 calculations for a family to navigate the overlapping web of tax incentives for higher education in the code today. Each of those tax incentives has its own definition of qualified expenses, student eligibility and income thresholds. Students and parents shouldn’t be expected to wade through this mess.”
Current education tax incentives can generally be classified into one of three categories: tax incentives for current expenditures on higher education, like the Hope, American Opportunity and Lifetime Learning Credits; tax incentives for student loans, including the deduction for student loan interest; and tax incentives for saving for college, which includes qualified tuition plans, usually referred to as 529 plans.
Among the potential solutions discussed, there was an emphasis on 529 plans.