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The House GOP Tax Plan Robs from Middle-Class Students and Borrowers without Giving to the Poor

Mark Huelsman

If you want to find a rare bit of consensus across the political spectrum—at least among the wonk class—start discussing the various ways higher education shows up in the tax code. Seemingly everyone thinks that the way we subsidize and incentivize higher education through the tax system is flawed, not well-timed, or generally inefficient, from the student loan interest deduction, to the tuition tax deduction, to the tax incentives for putting money away in 529 college savings plans, to the non-taxability of earnings in college endowments. In essence, most people agree that providing some relief at tax time is less effective in enabling someone to pay tuition or make a loan payment, since, well, tax relief comes long after someone might need the money, and because the lowest income households cannot fully take advantage of many of the current incentives in the tax code.

The disagreements start when we talk about what to do in a hypothetical world in which we cut, eliminate, or—to use a preferred term—“streamline” the benefits. Conservatives tend to want to cut benefits for their own sake, while others believe the money should go up front to students in the form of Pell Grants, or to institutions in return for educating (and making college cheaper for) working-class students. Today, with the release of the House GOP’s “Tax Cuts and Jobs Act,” that argument is at least a bit less hypothetical than before.

To summarize, the House Republican tax plan would get rid of several incentives—from the ability to deduct student loan interest as well as tuition, to the Lifetime Learning tax credit—which provide middle-class students and borrowers with some relief at tax time. In addition, the bill would levy a new tax on private colleges and universities with large endowments (defined as those with assets valued at more than $100,000 per full-time student). And in service of “streamlining” current education tax credits, the GOP itself estimates that students and families would receive $17.3 billion less over the next 10 years. Given who claims the various deductions, the upper-middle class would be hardest hit, which of course is better than a tax plan that explicitly hammers low-income students.

The problem is that low-income students see zero added benefit from this plan. It’s simply a series of ways to raise revenue that offset large tax breaks for corporations, wealthy heirs, and households making between $400,000 and $1 million—in an America in which median household income hovers around $50,000, and the wealth gap between the haves and have-nots is larger than ever. There’s no hint that additional revenue would go toward expanding Pell Grants—indeed, the GOP’s proposed budget would actually take money from the Pell program – or, for that matter, greater tax relief for the working poor. Even parts of the plan that seem friendly to low-income families – an expanded child tax credit or family credit – will not be available to the poorest households who do not have a tax liability. It certainly wouldn’t go toward loan forgiveness for borrowers, who conservatives tend to see as entitled. And it wouldn’t even go toward, say, job training programs for employers: employer-provided educational assistance incentives are also on the chopping block.

Likewise, the proposal to tax endowments is a bit of a bank shot—if the goal is to encourage colleges to spend more endowment funding on low-income students’ aid, that’s one thing. But the goal seems to be simply to raise revenue to fund tax relief for even wealthier entities.

The only real benefit for students or borrowers seems to be that families will no longer be taxed on loan forgiveness stemming from a borrower’s disability or death (which is a genuinely good change). Additionally, the plan could benefit the middle class by increasing the standard deduction, but the plan simultaneously eliminates personal exemptions, and severely constrains the ability to deduct state and local taxes. Taken as a whole, it’s still unclear which middle class families see a net gain from this plan -- and if those that do gain will just eventually see a tax hike in a few years.

So on its face, the whole plan seems to be a pretty big drag on the middle- or upper-middle class, with the lowest-income students and the super-wealthy being spared. But it’s worth taking a step back and looking at this tax plan in combination with recent budget proposals from Congressional Republicans and the Trump White House. In doing so, we come toward a unified theory of what the majority party thinks of the current safety net for students and borrowers.

All told, there have been proposals to cut the Pell Grant program’s current surplus, eliminate Public Service Loan Forgiveness for borrowers, end subsidies that prevent interest from accruing on federal loans while a student is in school, end federal career and technical education grants, slash job training programs under the Workforce Innovation and Opportunity Act, end programs that provide on-campus childcare, cut Medicaid, and eliminate the ability to get loan forgiveness through programs like AmeriCorps. Various plans have also suggested requiring longer payment terms before those with loans from graduate school can see forgiveness (while shortening the length of time for those with undergraduate debt). Combine this with elimination of the student loan interest deduction and less generous tax credits, and you see that very few students, from the poor to the upper-middle class, are spared. The tax provisions alone would eliminate about $65 billion in benefits through the tax code over the next 10 years.

And again, the $65 billion is not going back toward students, families, or even to institutions as a way of expanding opportunities or incentivizing greater enrollment and student success. It’s not going to the working poor as a part of an expanded EITC. It’s not going toward deficit reduction – a common reason provided for cutting social spending or reducing benefits – when the total cost of the GOP tax plan is $1.5 trillion over 10 years. In essence, it’s going toward relief for wealthier households and corporations, under the guise of “streamlining” or “consolidating” current benefits. If it were plowed into grant aid for students, or incentives for institutions that recruit and graduate low-income students and students of color, that would be one thing. But right now, middle-class families could see a sizeable cut while poor families see none of the benefit.