I am the first member in my family to receive a professional degree. I grew up in a single-parent home with a deaf parent on disability. Because I am from a family of limited means, I faced the cost of college alone. I worked very hard and I am proud that I diligently saved and worked throughout college to obtain my education. I shopped around for the best education I could afford and consequently chose to attend lower cost state supported institutions (my undergraduate degree was obtained at SUNY-Binghamton). The total cost of attendance for dental school at SUNY - Buffalo for in-state students is $88,742. Despite my efforts to save money and work hard, I am facing a mountain of debt. Upon graduation from my endeavor to become a dentist, I will owe $90,000. My monthly student loan payment will average $1,100 per month. I will pay approximately $7,500 of interest in the first year of repayment. After I graduate I will return to my hometown of Binghamton, NY, where I will begin a career as a general dentist with a practice that includes service to the hearing-impaired community.

A student loan interest deduction would be especially important for heavily-indebted students like myself in the early years after graduation when earnings are low and interest makes up a greater portion of loan repayment. Student loans are generally repaid over 10 to 25 years, so that the further a student is from graduation, the less interest there will be to deduct at presumably the same time an individual's earnings are increasing. The potential individual benefit depends on the level of indebtedness. In my case, when I begin work as a general dentist in Binghamton in September, I will have a salary of approximately $2,500 per month. The monthly check to repay my student loan, just this one payment, will eat up 40 percent of my take home pay! If the student loan interest deduction is passed this Congress, I would expect to save between $1,500 and $2,000 in taxes in the first year of loan repayment. This savings could equal over six-month’s worth of grocery bills and a year of utility bills. My circumstances are strikingly similar to students all across the United States who also have worked hard to earn an education and face debts that are equivalent to a home mortgage when they graduate. Like many others, I have this student loan debt burden to deal with before even thinking about the next generation. I ask myself, how can I save for my children’s education when I marry (in June) and start a family when I already face a mountain of debt from my own educational endeavors?

Student loan debt burden is a serious consideration for decisions about career plans and continued studies for many students. We are concerned about growing student indebtedness and its impact on access to higher education and post-graduation career choices. Restoring a student loan interest deduction would be a critical step the government could take to assist individuals with high student loan debt. This would especially help low- and middle-income families who have to borrow to finance higher education. Low income and minority students are two groups which would especially benefit from the student loan interest deduction.

I respectfully request that Congress consider a student loan interest deduction provision in any tax legislation being considered this year, such as the proposed provisions in S. 1 and S. 12. Students nationwide are struggling with increasing student debt burdens. This is the basic reason why Congress should intervene to assist students and their families through a wise use of the tax code.

Students do not borrow for frivolous reasons; most students have to borrow to finance their education. Their sacrifices can present a significant financial burden. Here are a few real examples from fellow students:

 

For many, a loan is the only means to finance a higher education. American college students have borrowed more in the 1990s than was borrowed by college students in the 1960s, 1970s and 1980s combined. While this does not account for inflation or other factors discussed below, it is a staggering thought. A 1995 survey found that 97 percent of American families ranked a college education as very important. Most students have been willing to incur large debt because they see it as an investment in their future financial security and in their potential for social contribution.

 

The amount of debt incurred by Ph.D. candidates has also increased in the 1990s. Data from the annual Survey of Earned Doctorates shows that the percentage of U.S. citizens earning Ph.D.s who have debt of $10,000 or more has increased by nearly one-quarter between 1990 and 1995. In 1990, 25 percent of U.S. citizens earning Ph.D.s had debt of more than $10,000; by 1995 this had increased to 31 percent. Moreover, disadvantaged minority groups, among the doctorate-level population, have even higher percentages with debt greater than $10,000. While 31 percent of U.S. citizen Ph.D.s had debt of $10,000 or more, 41 percent of African Americans, and 43 percent of Hispanics had student loan debt in excess of $10,000.

 

It is a good thing that students have greater access to lower cost loans. If not for various student loan programs, most graduate-professional students could not continue their educations. Even for undergraduates, student loans fill a major gap left by inadequate resources available in the form of grants and scholarships.

 

The skyrocketing reliance on student loans over the past decade can be attributed to increased opportunities to borrow for school as education programs have been created, expanded, and redefined to allow more students to borrow greater amounts. Reductions in public support for state universities combined with the Pell Grant shortfall and continued overall declining support for grants and scholarships at the undergraduate level have contributed widely to an increase in student loan demand. The near decimation of teaching and research fellowships and stipends at the graduate level have forced graduate-professional students to finance their educations almost exclusively with student loans.

 

Borrowing for college has increased at a rate nearly three times as fast as college costs and four times as fast as personal incomes. Between 1990 and 1994, borrowing grew by an average of 22 percent annually. During that same time period, costs of attendance (tuition, fees, room, and board) at public institutions increased by an average of 6.6 percent, and at private institutions by an average of 7.3 percent. Borrowing also has significantly outpaced growth in incomes. Disposable personal income per capita from 1990 to 1994 increased only 4.7 percent per year.

 

The National Postsecondary Student Aid Survey estimates on graduating debt for 1995 - 1996 for all undergraduate four-year programs is not yet available; however, a study conducted by the Educational Testing Service found that high school seniors who were concerned about borrowing for their education were more likely to delay college, choose lower-priced schools, or not go at all. Anecdotal evidence suggests that increasing debt may also hamper students from pursuing advanced educational endeavors. Debts of more than $100,000 for health professions students are not unusual. This growing debt burden for students may discourage the pursuit of advanced degrees, especially for disadvantaged and minority students. It may also discourage graduates from taking lower-paying public service, teaching, and research positions. Health professions graduates with high debt may be deterred from careers in primary care as well as careers in a community or a public health setting. In recent years anecdotal evidence suggests this was becoming a factor as debt increased. A 1992 study of medical students found that debt was a more important factor in surgical or specialty choice for students with debt of $75,000 or more.

 

We are particularly concerned with the impact of indebtedness on low-income and minority students. Students who often have the highest need, including older students, part-time students, and minorities, are increasing their debt levels at faster rates than other students, especially at the graduate-professional level. The most recent National Postsecondary Student Aid Study (NPSAS) found that the average annual amount of all student loan borrowing rose by 10 percent from 1990 to 1993 from $7,675 to $8,474. The NPSAS data indicated that while a 10 percent rise in borrowing can be viewed as minor, it is important to note that the increased borrowing took place among those attending public institutions, non-traditional students, and minorities. During the same time frame, full-time undergraduates saw their borrowing increase by an average of 8 percent, part-time students experienced a 17 percent increase, while older students experienced a 20 percent increase.

 

Examples of Graduate-Professional School Debt Burdens

Graduate-Ph.D.

Students By 1995, 47% of all Ph.D.s reported student loan debt of $10,000 or more.

 

Law Students

The 1995 average debt for law school graduates was estimated at $40,300.

 

Dental Students

In 1996, average graduating debt for dental school was $75,748 (72% graduated with debt of more than $50,000).

 

Medical Students

In 1996, median debt at private medical schools was $91,860. At public medical schools this figure was $64,275.

 

Osteopathic Medical Students

In 1995, average indebtedness of seniors graduating from osteopathic medical schools was $90,300.

 

Podiatric Medical Students

In 1996, the national average debt for graduates of Podiatric medicine was $123,000.

 The Student Loan Interest Deduction is a Positive Solution to Encourage Investment in Higher Education and Alleviate the Student Debt Burden

Unless we could wave a magic wand and create hundreds of billions in additional scholarship dollars for students, the reality is that student loan debt is here to stay. It is fair to ask students to make an investment in their future. Restoration of a student loan interest deduction is an effective way to help encourage this investment while alleviating the financial burden. It also will not contribute to an increase in college costs simply because the benefit is on the back-end, meaning the student will already have expended the monies for tuition, fees, room and board, and will not realize the tax benefit until repayment. Colleges will have absolutely no incentive to raise costs if Congress were to restore such a deduction.

 

The 1986 Tax Reform Act phased out the deduction for "consumer" interest over a 5-year period, to discourage over-reliance on credit. Unfortunately, educational loans were also included, even though they are investments in education rather than discretionary consumer borrowing. We believe that borrowing for higher education is an investment in human capital which should be treated like other capital investment. Loans used to finance an education contribute to the economic strength of this country in a significant manner.

 

Current law permits interest deductions for educational expenses paid for through home equity loans. This is not an option for most of the student population, and some families, who either do not own a home or do not have sufficient home equity, cannot benefit from this deduction. In fact, many students’ dream of owning a home may be influenced by their student loan debt.

 

Our view is that a deduction for a first education is just as important as a home mortgage interest deduction for a first house (oddly, the tax code allows individuals to deduct for a second house but not a first education!). Further, according to a 1995 report, a student’s debt may deter them from purchasing a home early in their lives. If a borrower’s debt payments, including mortgage payments, exceed 33 - 36 percent of monthly gross income, they may be denied a home loan. If student loan payments fall between a quarter and a third of a graduate’s monthly income, the probability of meeting the qualification guidelines and securing a mortgage is significantly lower.

 

Elimination of the student loan interest deduction especially hurts students from families where there is little or no excess cash to contribute to the student's education, as well as students who are financially independent and not receiving parental support for pursuing a degree. From 1990 - 1993, 57 percent of the traditional-age graduates with an undergraduate degree saw their student loan debt rise by 4 percent, while 60 percent of the non-traditional age students saw their debt increase by 20 percent.

 

While restoring the student loan interest deduction is neither the only solution to the growing debt problem, nor the only factor affecting career choices, it will help to make student loan repayment more reasonable and allow graduates a full choice of career options. This means entry into fields such as public health, primary care, teaching, and research, where earning potential is substantially reduced. Many Deans and Financial Aid Administrators have observed how students have altered their career choices, and ruled out certain options, based on the level of debt they will incur. Students and parents understand the concept of an interest deduction, and how it will help them with loan repayments. A dean of a professional school reported the reservations by a student's parents when they realized that the educational debt was going to be larger than the mortgage on the family house.

In most cases of students and parents with significant higher education debt, the student loan interest deduction will be beneficial. This is particularly true for parents who have several dependent children attending college at the same time. We believe that it is essential to have a student loan interest deduction as part of any higher education tax proposal, so that those with the highest debt will be assisted in a meaningful way.

The Most Important Features of a Student Loan Interest Deduction