College students and the parents face consider changes in the tax benefits that surround saving for college, paying tuition and fees, and retiring the debt afterward.
That’s the assessment of a nationally known expert on financial aid matters.
Financial aid expert Mark Kantrowitz, publisher of Cappex.com, tells Newsradio 740 KTRH that it all means college would be less affordable in the time ahead.
However, he said many taxpayers would benefit from other parts of the plan, such as lower marginal rates and “an individual standard deduction nearly double what it is now,” Kantrowitz said Monday.
It’s all part of the proposed Republican plan to change the U.S. tax code.
The Congressional plan outlines $64 billion worth of cuts over the next 10 years to tax advantages currently enjoyed by students and borrowers.
Here are five key potential changes to tax policy related to paying for postsecondary education:
--Coverdells out; 529s pushed. The plan would end the Coverdell education savings account in favor of expanded “529” college savings plans. The Coverdell account is similar to a 529, except that it can also be used for K-12. “So they’re taking the best feature of the Coverdell and rolling it into the existing 529s," Kantrowitz tells KTRH – so 529s will now be able to be used to pay for elementary and secondary education. The GOP plan would also allow a fetus to be a 529 beneficiary, not just a child with a Social Security number, as it is now.
--Student loan interest deductions will end. Right now borrowers with a modified gross income of $65,000 ($135,000 for couples) can deduct up to $2,500 a year of interest paid on student loans. It’s a deduction claimed by more than 12 million filers, according to the IRS, and saves about $300 to $600.
--Tuition help from your job would be taxable. The GOP plan drops employer-paid tuition assistance of up to $5,250, so anything your job helps pay or reimburse for college would now count as taxable income. The plan also would permanently end a past provision allowing up to $4,000 a year for tuition if their and related expenses, if their adjusted gross income is under $65,000.
--Tax credits. Available aid would increase under the American Opportunity Tax Credit, which offsets tuition, fees and course materials. Students right now can get a $2,500 credit or an annual $1,000 refund for up to four years. The GOP plan keeps this plan – and adds a fifth-year credit of up to $1,250 or a $500 refund However, the Republican plan would kill the Hope Scholarship Credit and the Lifetime Learning Credit.
--Relief for death or disability. Your student loan balance would be erased if you die or become permanently disabled. The tax would be eliminated on the discharge of your debt.