Just Throwing This Out There, Sunday Edition

14 Nov

Caveat: I’m just thinking out loud here as a grad student, haven’t done the research yet.

That being said…

All this talk about removing the mortgage interest tax deduction, yet why do I hear no talk about changing tax deductions for student loans and other educational expenses? (note: that’s at least 50% a rhetorical question).

I’ll talk more about this later in the week (at least that’s the plan) with the #’s, but as post-secondary educational costs increase at several times the rate of inflation, why are we not giving students a break by increasing deductions/deduction limits to match these increased costs?  Last I checked educational expenses are deductible up to $3,000/year, yet tuition + expenses/year of post-secondary education run 10-20x + that!  I’m not saying everything should be deductible – that’s silly and unrealistic – but with textbooks costing $250+ each and 4-5 classes/semester, that $3,000 is only a blip for most students.

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2 Responses to “Just Throwing This Out There, Sunday Edition”

  1. spaceinvader November 19, 2010 at 6:57 pm #

    Generally, how much income does a student generate? A larger deduction would, in most cases, create a “NOL” in the current year, which could be carried forward or back. Ex-financial workers would definitely benefit from a carryback. And getting a tax break for a few years of employment, there is a limit on number of years a NOL can be carried forward, would definitely be beneficial to those just starting out with no savings.

    Interest and principle payments on student loans are deferred until the student lands a job, so interest expense is matched with income. But the question is should student loan interest be deductible? It seems as if the answer s/b yes, since this expense is generated for the sole purpose, usually, of obtaining job or higher pay status, i.e. an income generating activity.

    About mortgage interest deduction–this is an abused deduction. During the “free credit” era, many homeowners based on the fantasy appraisals either took out a second mortgage or a home equity loan. These funds, then, were used by many, not all, to pay off consumer debt–nondeductible interest and not increasing the “real” value of the property. The transaction just changed the nature of the debt from nondeductible consumer debt to deductible mortgage debt. And well, you know the after effects on these mortgages.

    Federal Income Tax code is used, in part, to control social behavior. If the US government believes that education will positively effect the economy, then perhaps more deductions will be granted. The problems are that too often, people will go to college for the social life and/or major in a field, such as photography or dance, that a college degree is immaterial.

  2. spaceinvader November 24, 2010 at 7:30 pm #

    Hey–I saw this discussion on Gawker today–thought it might be relevant:

    See 0 reply Hide 0 reply
    Kitten_Witawip 05:18 PM

    Has anyone ever tried to transfer loan debt to a credit card and default on that? Or is student loan debt non transferable?

    mercutio2613 05:46 PM

    @Kitten_Witawip: They probably are, but if you’re financially unable to handle your debt, odds are that your credit line isn’t even close to sufficient to cover it all. And if you started doing it piece by piece, credit companies would probably catch on really quickly.

    shostakobitch 05:50 PM

    @Kitten_Witawip: You can pay Sallie Mae with a credit card. I have built up over 70,000 miles that way so far.

    heywhat 06:40 PM

    @Kitten_Witawip: Yes, I had a friend who pretty much did that. He paid all of his student loans (about 15K) with his credit cards then filed for bankruptcy. I don’t know if this girl will be able to do that because 200K is an awful lot of debt. I doubt she’ll be able to get several credit cards with high enough lines given her credit history (she’s already defaulted on her student loans).

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