Since 1954, the IRS code has been more than a mechanism to raise revenues, it has been an essential instrument of both social and economic policy, incentivizing investment into areas of national priority. Home ownership, energy, research and development, charities and educational institutions have all benefited from write-offs and tax credits under the tax code precisely because those are national priorities. Businesses recapture capital costs over a specified number of years or the useful life of the asset. The real estate industry utilizes depreciation, oil and gas gets depletion, manufacturers recapture their plant and equipment costs and sports teams even depreciate their players.
In 1954 a college degree was mostly a luxury, a social norm seen as personal development. State and city institutions were practically free in part due to the GI bill and the enrollment of soldiers during the post-war period. At $10-$15/credit college tuition averaged less than $450 per semester and $900 /year for in-state institutions. The inflation adjusted value of a 1954 dollar today is about $11.60 eleven and a half times its 1954 value. By that measure tuition should cost an affordable $10,440/year in today's dollars. Instead, college tuition today averages closer to $50,000/year far outpacing inflation and making education cost essentially a capital investment, every bit as much as brick and mortar.
In 2024, higher education is not only a personal necessity, but also a national priority essential to assure the USA has the educated and trained workforce necessary to compete on a global scale and for the development of a thriving, productive, and competitive middle class. Currently, costs for college and professional degrees can run well beyond $400,000 or more and stand as the biggest barrier to economic growth and mobility into the middle class. While some students have the resources to pay, many rely on student loans that over 30 years more than triple the actual cost when interest is included.
For outdated reasons, higher education costs cannot be amortized or given the tax treatment available to all other business investments. Few would doubt that education costs today are, in fact, an investment in human capital that benefits the entire nation and deserving of fair tax treatment, -the right to recapture those costs over a 10-year amortization schedule.
The need to amend the tax code to permit amortization of education costs is made even more urgent because student debt is not dischargeable in bankruptcy due to a controversial revision to the bankruptcy code in 2005 supported at the time by Senator Joe Biden. Surely student debtors should be able reorganize their debt after a waiting period. Unfortunately, the maxim that bankruptcy “gives an honest debtor a second chance", simply does not apply to student debt which is forever and accruing.
Ironically, Republicans have renominated Trump, who regularly loaded up on debt and then used bankruptcy to stiff contractors, lenders, and investors as a business model, (that is when he wasn't laundering money for Russian oligarchs.) By comparison, student debtors, a class well deserving of bankruptcy relief, are further dissuaded from even making the investment and have absolutely no leverage with lenders to reorganize the debts if needed. This is gross hypocrisy, is patently unfair, and needs to change. Education costs now stand as the most substantial barrier to entry into the middle class and without a bankruptcy option, tax reform is essential to level the playing field for human capital investment.
Amortization of education costs won't make tuition free, but it will provide incentive to pursue and pay for one's investment in higher education by those who will drive the economy for decades. There are currently deductions available of between $2,000 and $4,000 for tuition payers meeting the income qualifications, $65,000 single payer, $130,000 joint payers, which generates between $400 and $800 in annual savings during matriculation. It is not, however, the long-term solution to unfair tax treatment and is subject to congressional renewal each congressional term.
Writing off $400,000 in education expenses over 10 years generates a tax benefit of $88,000 assuming a 22% federal tax rate, is paid for, and is a vast improvement over the proposed $10,000-$17,000 of student debt forgiveness. Importantly, the benefits of amortization apply fairly to all students not just student debtors and the underclass, and are paid with tax breaks by working individuals, not debt forgiveness. Forgiving $17,000 of student debt, typically a fraction of loan principal, has little immediate benefit and will reduce total costs only marginally over 20-30 years lowering the interest rate only by a point or so.
Under tax reform, education costs accrue in the capital account of the payor. Upon a student's entering the work force, the accrual is written off against earned income per the 10-year amortization schedule. It is not a tax credit and has the greatest impact during early years in the workforce when needed most.
The US cannot lose an opportunity to assure that student debt and higher education cost are treated fairly in the tax and bankruptcy codes, and to fundamentally recognize that in 2024, human capital investment is every bit as important to the economy as plant and equipment or brick and mortar. Besides, when applied equally to all taxpayers, there’s scarcely been a Tax Break Republicans haven’t supported, especially one that recoups money from the government. It’s time to reform the Code.