Note: To find a zip code or town, zoom in and move the map or use the magnifying glass to search by the zip code or town name (include NJ for a town). Switch between data on the student loan deduction and the Lifetime Opportunity Credit using the layers box atop the map.
Several hundred thousand New Jerseyans stand to lose one or more federal tax benefits set aside for higher education under the current tax-reform proposal that has passed the U.S. House of Representatives.
These are not as large as losing the deduction for state and local property taxes — $21,000 for the average New Jerseyan in 2015. But the potential loss of an average $1,158 deduction for interest on student loans and an average $1,203 Lifetime Learning Credit (a credit of up to $2,000 for those paying for college or other courses to improve their skills) would further hurt New Jersey filers who currently take these tax offsets, should the House Republican plan be enacted.
And there’s another, smaller group that would face even greater pain should Congress get rid of yet another tax provision that helps some students: The House bill seeks to tax the amount of free college tuition received by college employees and their families. The biggest group of recipients of these tuition waivers includes students who serve as resident assistants supervising younger students living in dorms, and graduate assistants and teaching assistants who do research or teach undergraduate classes while pursuing an advanced degree.
The American Council on Education estimates that, nationally, 27,000 undergraduates and 145,000 graduate students did not pay tuition because of these college employee policies in 2012, the most recent year for which data was available. State estimates were not obtainable.
For New Jersey public college students, that would mean having to declare income of between $11,000 and $16,000 – Rutgers University’s tuition and fees total about $14,000 a year. For those at private colleges, the tuition and fees range from $29,000 to $48,000 in New Jersey but can be even higher elsewhere. Having to declare those amounts as income could lead to tax bills ranging from about $3,000 to $12,000.
Forced from school
Austin Baker, a fourth-year doctoral student at Rutgers, said this change alone could force thousands of grad students across the country to abandon their studies and their teaching or research positions by pushing them into higher tax brackets and making it impossible to both pay income taxes and housing and food costs.
“I am very worried about what will happen if the bill goes through,” said Baker. “I’m worried about how I would pay my own rent. Any money I have now is really tight … We already are not being paid much.”
Add to that a typical grad student’s loan burden — the average American graduate student has $42,000 in outstanding loans — and the loss of the ability to deduct interest paid on the loan and it becomes truly impossible to make ends meet, Baker added.
According to an analysis of the Internal Revenue Service’s 2015 Statistics of Income, which counts all tax returns filed in 2016, some 8 percent of New Jersey tax filers took the student loan interest deduction. Those 347,000 households deducted nearly $403 million, for an average of $1,158 per family. The maximum deduction currently allowed is $2,500.
“Just another way that the tax plan, overall, punishes working families at the expense of large tax cuts for multinationals and the very wealthy,” said Jon Whiten, vice president of New Jersey Policy Perspective, a progressive think tank based in Trenton.
New Jersey has among the highest rate of students taking out loans and a high total debt — more than six in 10 2016 graduates had an average $28,233 in outstanding loans — so it is not surprising that the state’s tax filers rely more on this deduction than filers in other states. The average loan deduction in 2014 was the second highest in the nation, behind only the District of Columbia, according to an analysis by the national Center for American Progress of IRS data.
Five of the 25 Congressional Districts with the largest average loan deduction in 2014, according to CAP, were in New Jersey:
Within New Jersey, the largest deductions — more than $1,530 — were taken in Monmouth Beach’s 07750 ZIP code and 07934 in Gladstone. The greatest proportion of taxpayers taking the deduction was in the Fort Dix ZIP code of 08640, 17.5 percent of all filers claimed it.
Qualifying for the deduction
Currently, not everyone can take the deduction: the maximum is available only to single borrowers with income of up to $65,000, or $130,000 for married couples, and is phased out totally when income reaches $80,000 for a single and $160,000 for a couple.
Also slated to be eliminated is the Lifetime Learning Credit, a maximum of $2,000 a year that those with an income of $65,000 or less as a single, $130,000 as a couple, can take off their tax bill.
More than 300,000 New Jersey filers took this credit in 2015, about 7 percent of all households. They got an average credit of $1,203, with amounts ranging from a low of $848 in McGuire Air Force Base’s 08641 to a high of $1,629 in 07641 in Haworth. This is another tax benefit popular with military families, as the greatest percentage of a ZIP code’s filers who took the credit were living in Fort Dix.
One other higher-education credit, the American Opportunity Credit of up to $2,500 that can be taken for those in their first four years of college, is not slated for elimination and the House bill would increase the number of years it could be taken to five years. More than 290,000 New Jerseyans took that credit in 2015, getting an average $945 — the amount of credit given is indexed to income and those with $90,000 in income as a single, or $180,000 as a couple, are not eligible for any AOC.
Reconciling the bills
All three of these changes are part of the tax-reform bill the House passed last month. As of Thursday, while the Senate debated, its version of the bill did not contain them. But if the Senate votes to approve a measure, that will have to be reconciled with the House bill.
The taxation of tuition waivers could devastate not only students, but also the university system. Baker said that nearly a quarter of those pursuing doctoral degrees in the United States get some sort of tuition and fee waiver. Should universities wind up losing a lot of these TAs because they can no longer afford to study if they are forced to pay higher taxes or pay for their tuition, these institutions would have to hire other faculty members, which could further drive up the already high cost of college.
And the College and University Professional Association for Human Resources contends in a paper on the proposal that it “would also negatively impact the research endeavors at major research universities across the country, which rely to a great extent on the work of graduate students.”
“It feels like the rug is being pulled out from under us,” Baker said. “It would really hurt us.”
Baker said she and other graduate students will continue to lobby against those provisions that would hurt not only them, but middle-income families across the country.
“Our union definitely views this within the larger framework,” she said, citing complaints against other provisions that would wind up making 13 million Americans lose their health insurance and progressively raise taxes so that those earning less than $30,000 would pay more beginning in 2021 and all making less than $75,000 would pay more by 2025. “This is an attack on the working class.”