student loans

Since former President Joe Biden left office, nobody’s talking about student loan debt.

It’s still there. All $1.7 trillion of it. Over 40 million have student loan debt. That’s nearly one in six adult Americans.

It clicked into focus again when President Donald Trump announced his plans to make interest paid on a personal auto loan a deductible item on income taxes, as long as the vehicle is made in the United States.

It does beg the question, if interest on a personal auto loan can be deducted—why not allow the interest on student loans to be deducted?

The IRS currently allows for a student loan interest deduction of no more than $2,500, depending on your income and marital status.

It’s something. But the average student loan debt on a graduate degree is about $100,000 at roughly 7% interest. Much of the actual interest paid never hits a tax return.

Compare it with interest deductions taken by small businesses. While large corporations may face limitations, a small business can generally deduct interest paid on an operating note—without a cap on either interest paid or earnings made.

This is a good thing. Deductions for small businesses are needed. They create jobs.

But there are two parts to the equation of a successful small business. Employers create jobs. Qualified and educated individuals fill them.

For many entrepreneurs, starting a new business requires investing their life savings as well as taking out loans to get the enterprise off the ground. For many students, obtaining a college degree requires investing their savings as well as taking out loans to be able to make it to graduation day. Both entrepreneurs and graduates keep the economy humming, and many times both have taken out loans to help make that happen.

If a small business can deduct operating note interest expense, maybe it’s time to think about allowing graduates to deduct their operating note interest expense—their student loan interest. 

There are many education choices, and student loans assist in all of them. Many of the trades—building, plumbing, electrical, mechanical, etc.—still require a two-year degree. Four-year degrees are needed for white-collar positions in many professions. And advanced degrees—graduate and doctorate—are required for high-skill and knowledge occupations demanding licensing and certification.

Every year of education beyond the high school diploma gives employers more opportunities to hire skilled workers—people they need if their business is to survive and thrive.  

And the distance between business owner and college graduate just got a little bit shorter. The Trump administration proposes to move student loans from the Department of Education to the Small Business Administration. Student loans and business loans will have more in common.  

Give these graduates opportunities to deduct student loan interest without a cap and without an income limit. 

This idea will receive pushback from some, particularly those who paid back student loans without a fair deduction for interest paid.

But that’s the thing about new policies. They’re new. With new starting dates.

When it’s new, it’s not historical. There are certain tax advantages that today’s businesses have, but which former businesses didn’t have the opportunity to enjoy. Auto loan interest was not a deductible item for millions of individuals who purchased multiple American-made vehicles over the years, but Trump’s agenda is calling for it to happen now.

And student loan interest has been paid for decades by others who didn’t receive full tax benefits for it, but a new policy could make fairer student loan interest deductions a reality for current debtors.  

As for the suggested auto loan interest deduction, there are few details confirmed yet on how it would work. Will the amount of deductible interest be capped? Will the deduction be available only to those who itemize deductions on their income tax? (About 10% of taxpayers and typically wealthy individuals.) Will the standard deduction of $29,200 for married individuals filing jointly or $14,600 for single individuals be high enough that, for most, an auto loan interest deduction would have no effect on their income taxes?

There are real deductions and pretend deductions. Real deductions significantly help the taxpayer. Pretend deductions are lamely capped, punishing when tied to income, or only a dashed hope for most if lumped in with the standard deduction.

Trump recently made a comment that wealthy people understand deductions very well. Make the pursuit of wealth and the benefit of deductions open to all. Business owners. Degree owners. Auto owners. All want to strive for and enjoy the American dream.

By allowing for greater student loan interest deductions, it will bring that dream a little closer to the 40 million individuals who struggle with its burden. Even while their skills and knowledge continue to benefit our economy.