Home > Personal Finance > Four Impacts of GOP Tax Plan for Families Paying for College

Comments 0 Comments

When it comes to the new GOP tax bill and its impact on those paying for higher education, the good news far outweighs the bad.

For instance, the bill did not affect the student loan interest tax deduction, which likely inspired a collective sigh of relief among former students everywhere who are working to pay off college debt.

Another upside, the tuition waivers that graduate students receive will continue to be tax free, as will employer provided tuition assistance.

“For the average person, I don’t think [the new tax bill] will change their desire or ability to save,” said John Pearson, of Connecticut-based Barnum Financial Group.

But there were a few changes in the bill that may impact students and also family members who are helping to pay for higher education. Here are some of the most noteworthy developments.

Loss of Deductions on Home Equity Loan Interest

By some accounts, the loss of the tax deduction on home equity loan interest could have a noticeable impact on families. Here’s why: In the past, when comparing interest rates, it was often cheaper to take a home equity loan to pay college expenses than it was to take an education loan.

But the new tax law eliminates the ability to deduct the interest on home equity loans until 2025. As a result, it could cost families slightly more to use this approach to fund higher education.

“Without the benefit of the annual tax deduction on the home equity loan, families should shop around to compare other rates and options,” advises Joe DePaulo, CEO and co-founder of College Ave Student Loans. “You may find a lower rate or a repayment plan that better suits your life and monthly budget.”

Those who continue to use home equity loans to fund education will now need to look at the after-tax interest rate on those loans.

“Before you might have been getting tax benefits so the net cost was only three percent instead of what may now be four percent,” Pearson said.

Home equity loans may continue to be the funding method of choice for many people, added Pearson, because unlike student loans, they can be discharged in the event of a bankruptcy. Student loans are never forgivable in bankruptcy.

College Endowments Tax

While this provision in the GOP tax bill is not aimed directly at students, experts say someone will likely have to pay the cost of the new tax on college endowments.

Under the new bill, private universities with endowments valued at $500,000 per student or more must pay a 1.4 percent tax on endowment earnings. It’s estimated that about 30 colleges may be subject to this new measure. There’s also some concern that it may discourage philanthropic giving to schools.

“Bottom line, the excise tax on endowments is going to cost the colleges and universities money,” said DePaulo. “How and if that is passed down to the student is unknown; however, students and families should be prepared there could be changes.”

Discharges for Death or Disability Are Now Tax Free

Though death and disability are not subjects most people like to think about, the reality is that the new tax bill has made some positive changes on this front. Under the new tax code, discharges of student loan debt due to death or permanent disability is now tax-free.

“Previously the debt cancellation was included as income on the bill,” said Priya Mishra, managing attorney for Houston-based Top Tax Defenders, a back tax resolution firm.

Alimony is No Longer Taxable

There’s mixed opinion about how beneficial this change may be when it comes to families paying for higher education.

By some accounts, it could make it easier for custodial parents to get need-based aid through FAFSA (Free Application for Federal Student Aid.) If alimony is not part of an individual’s tax returns, then the parent in this situation may qualify for financial aid or more aid than they have in the past.

However, Pearson points out that as part of the FAFSA application process, there are many forms of non-taxable income that applicants must include for consideration, such as child support, municipal bond interest and more. Alimony may be among the non-taxable income that must be reported.

“There’s been no ruling on it yet, but given the precedent with child support, alimony may still be considered,” said Pearson.

Also keep in mind, FAFSA will require submitting tax returns from a prior year, so there will be a one-year delay before this provision truly pays off.

If credit is on your mind, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated every 14 days.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.


Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team