Student loan interest deduction is on the chopping block

Personal Finance

For many borrowers who can claim it, the student loan interest deductiondoesn’t amount to much. Looking at those 2015 IRS records, the average amount of interest is roughly $1,100, saving someone in the 25 percent tax bracket about $275, said Mark Kantrowitz, vice president of strategy for college and scholarship search site

“If you were to claim the full $2,500, it would correspond to $625 reduced tax liability,” he said.

But the loss of the deduction would still be an unwelcome hit. The loss of that break could have a ripple effect on other elements of your tax situation, because your taxable income is now that much higher, he said.

“You’re looking not at people who have six-figure salaries. … You’re looking at people who have middle salaries,” Kantrowitz said.

Borrowers most likely to feel the full loss of the deduction would include recent graduates of either grad school or undergrad with “significantly above average” student loan debt and income below the phase-out threshold, Kantrowitz said. (By his estimates, a borrower would need undergraduate debt of roughly $54,000 at current rates, compared with the average $37,000, to hit that $2,500 interest max.)

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