As House Republicans continue frantically searching for popular programs to gut in order to clear the financial hurdle needed for their plan to bestow billion-dollar annual tax breaks on large corporations and the wealthiest Americans, one casualty of their “welfare for the rich” campaign includes the student loan interest tax deduction. This deduction is an aspect of the tax code that is critical to alleviating pressure on students with debt on their student loans. In a refreshing appeal to sensible policy, the US Senate Republicans’ tax plan currently aims to leave the student loan interest tax deduction alone. However, the willingness to scrap this crucial tool of social mobility for the sake of the House Republicans’ give-to-the-rich tax scheme is a microcosm of the government’s general neglect of sound higher education policy over the past 30 years.
The House Republicans’ tax plan (“Tax Cut and Jobs Act”), which was passed on Thursday, Nov. 17, cuts about $1.4 trillion from the federal government’s tax revenues, mostly in the form of corporate tax cuts and lowered taxes on the wealthiest Americans. Although much of these cuts are unpaid for, the supporters of the bill decided the student loan interest tax deduction was less valuable than massive tax breaks to the wealthy. As a result, the House of Representatives has presented a vision of an exploding federal deficit accompanied by scattered tax increases on more vulnerable portions of the country that will slightly reduce the scope of the deficit, yet will also cripple key sectors of the economy and stifle investment into education and the future.
As a whole, the Republicans’ tax scheme is one of America’s boldest leaps into the dangerous theoretical economic territory known as supply-side economics, a continuously disproven theory of economic thought. By cutting over a trillion dollars in taxes from corporations and America’s wealthiest individuals, Republicans claim that the additional income to those sources will boost investment and facilitate job creation, catalyzing economic growth. A realistic look at the economy however, shows that despite record wealth and profits amongst the largest corporations and richest Americans, employment, GDP growth and per capita incomes have more or less stagnated as dividends to CEOs and shareholders increase exponentially.
This data indicates that increased savings for wealthy individuals and large companies only exacerbate this trend of economics, in which, instead of trickling down, wealth is hoarded by rich shareholders and CEOs. If the Republican plan merely cut taxes, the result would likely be meager growth and a massive buildup of wealth savings, in addition to significantly enlarging the federal deficit during a period of economic expansion. Because the House Republicans have also decided to remove key tax deductions from college students and the middle class, however, it is inevitable that the economy will face challenges that may offset or even overshadow the moderate amount of growth the tax cuts will generate.
America’s student debt crisis currently amounts to a $1.3 trillion debt, making it the second highest consumer debt category in the nation. By removing a yearly $2,500 student loan interest tax deduction on students making less than $80,000 per year or families making less than $160,000 per year, the House Republicans’ plan will only intensify the scope and volume of the dilemma. With a student loan delinquency or default rate of over 11 percent, an annual $2,500 each year clearly could make the difference between a student’s ability to pay off their debts.
The government’s attitude toward the student loan interest tax deduction, however, is just part of a much larger disconnect between policy and the best interests of our higher education system. Costs of tuition have nearly quadrupled in the past 35 years as a result, and so have public subsidies for higher education, but not nearly at a high enough rate. Undergraduate enrollment in America’s colleges and universities has increased by nearly 50 percent since 1995, as has spending by universities, especially on administrative costs as the number of administrative positions at colleges nationally have grown by over 60 percent from 1993 to 2009.
Increases in public subsidies for education and financial aid have allowed universities to raise tuition costs on students as the demand for a college education in the US remains staggeringly high. As a result, students remain paying incredibly high prices while the US government typically ends up covering the difference. The merit of the student loan interest tax deduction however, is that the savings go directly to the students without being passed on to the universities, preventing institutions from taking advantage of public subsidies.
Senate Republicans, thankfully, appear to understand the value of the student loan interest tax deduction and have not yet planned to enact this plutocratic repeal of the deduction in their plan. However, the neglect shown by the Republican members of the House of Representatives is symptomatic of the very behavior that has caused the student debt crisis in the first place, and will surely continue to worsen the situation.