Less than a month ago, President Donald Trump and congressional Republicans scored their first legislative win by passing the new tax code. Estimated to add an additional $1.5 trillion to the federal debt, the new GOP tax bill eliminates many deductions and adds some various benefits. These provisions impact those who are paying for college but fortunately, many tax credits that were formerly related to higher education have been left untouched. While the deduction for student loan interest along with tuition waivers are still in place, there are a few changes that should be reviewed.
- 529 Plans
Qualified education-related expenses can now be used to pay for both elementary and secondary school tuition up to $10,000 per student each year through a 529 savings account. Families with a high net worth will see the most advantageous benefit of this change.
- Excise Tax on Endowments
According to an article by U.S. News, private educational institutions will now have a new excise tax of 1.4 percent on endowments amounting to more than $500,000 per student. This will hit universities such as Harvard, Notre Dame, and Stanford the hardest.
- Death or Disability Exemptions
A long ongoing debate over debt cancellation added as income to taxpayer’s bill has finally been addressed. Between 2018 and 2025, death and disability discharges of both federal and private college loans will be tax-free.
- Alimony Taxation
Previously, alimony was considered taxable, that had a high impact when filling out the Free Application for Federal Student Aid. With a change eliminating its taxation, custodial parents can qualify for need-based aid more easily.
- Elimination of Interest Deductions
From 2018 to 2025, the ability to deduct interest on home equity loans is suspended, which will impact a significant portion of families. Many tap into their home equity to pay for education as the interest rates tend to be better than college loan rates.
The tax legislation impact will vary depending on your situation, but according to the Committee for a Responsible Federal Budget and the American Council on Education, the bill may reduce tax benefits and savings for college students by $65 billion in the next ten years. This could make college more expensive or even unavailable to many.