June 06, 2020

Student loan credit

President Bill Clinton recently borrowed half a proposal from Sens. Charles Schumer of New York and Olympia Snowe of Maine to provide tax breaks to help more Americans afford college. Unfortunately, he borrowed the wrong half.

The president chose to support a tax break for middle- and upper-class parents of college students by making their tuition payments tax deductible. (Lower-income parents already have this option through the federal Lifetime Learning program begun in 1997.) The president’s $30-billion, 10-year plan is a nice gesture to people who were going to send their children to college anyway, but it does very little to increase access or provide opportunities that do not already exist.

Instead, he could have better targeted this money by singling out a proposal by Sen. Snowe last summer that eventually became part of S. 1974. Her plan provides tax credits on student loan interest payments for the first five years after graduation. The idea isn’t revolutionary, but by saving students up to $1,500 on interest payments is a measurable way to ease a burden that has grown all out of proportion with general inflation during the past two decades.

Unlike the tax break, which lowers a parent’s taxable-income level, a credit chops off a portion of taxes due. It is more likely to benefit students directly and is harder for colleges to compensate for in deciding how high to set tuition. Given the government’s reluctance to increase funding for outright grants for college, a tax credit is a valuable alternative.

It is difficult to quantify how many students are put off from college by the debt they will take on by going. Certainly by any accounting, a college degree pays off handsomely for the investment in college costs, but a high debt can affect students’ choices in numerous ways. They might, for instance, decide that their debt precludes them from becoming a teacher, a career society values every way but remuneratively. Or they might decide that graduate school is beyond their financial reach because of their undergraduate costs or that they cannot afford the time for volunteer work.

The proposal by Sen. Snowe, who also favors increases in the popular but underfunded Pell grants, is a positive step toward increasing college access. As members of Congress consider the president’s plan, they might recall that they already have a better alternative.

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