Grassley's plan would eliminate the restriction in current law which allows a tax deduction for student loan interest for just 60 months. The bill he introduced today would allow taxpayers to take the deduction for the life of the loan.
"We need to help young Americans get the best education possible so they can stay competitive in the global economy. Paying for a college education is a tall order, and tax relief for student loan payments can help alleviate some of the burden. It's especially important for those who dedicate themselves to careers in public service, like teachers," Grassley said.
Grassley has long advocated favorable tax treatment for those repaying the costs of a college education. Since 1987, he has spearheaded a bipartisan effort to reinstate the tax deduction for student loan interest after it was dropped in the tax code overhaul of 1986. In 1992, Grassley won passage of a bill to re-establish the deduction, but it was vetoed as part of a larger bill that contained tax increases. His determination paid off in 1997, when a Grassley amendment to reinstate the deduction was included in the balanced budget plan that became law. To control costs, the amendment was modified to limit the deductibility of student loan interest to only 60 loan payments.
"Now is the time to make up the difference. The budget is balanced and surpluses are projected well into the future. Investing in the higher education of our young people is a smart way to respond to a brighter fiscal picture," Grassley said.
Grassley said that the bill he introduced today to eliminate the 60-month rule would also cut red tape for taxpayers because the restriction is accompanied by difficult and costly reporting requirements for both borrowers and lenders. Earlier this month, President Bill Clinton signaled his support for the Grassley student loan interest deduction by endorsing elimination of the 60-month rule starting next year in the administration's budget. Grassley said his plan goes further than the president's, however, because it includes payments made during the last two years.
"The time restriction on the deduction hurts the neediest students the most because they borrow the most money and repay over the longest period of time," Grassley said. "It's not right to discriminate against those with the highest debt loads and lowest incomes. We need to encourage those who start with less and work hard to make a better life. Lifting the restriction means real help and sends an important message."
To claim the deduction, a taxpayer must have an adjusted gross income of $40,000 or less, or $60,000 for married couples. The amount of the deduction is gradually phased-out for those with incomes between $40,000 and $55,000, or $60,000 and $75,000 for married couples. In addition, the deduction was phased-in at $1,000, and will cap out at $2,500 in 2002.