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In the course of rolling out new content as a part of’s feature series, The Student Loan Issue, (brought to you through a generous sponsorship by F.H. Cann & Associates) you’re likely to read a lot about student loan debt tied to borrowers who can’t repay, won’t repay, don’t repay, or for whatever reason simply haven’t repaid their financial obligations to the U.S. Department of Education or private lending institutions of one kind or another.

And there are a whole mess of folks who fall into one of those four categories.

In fact, almost five and a half million Americans are behind on their student loan payments. To put that number in perspective, 30 of the 50 U.S. states have total individual populations less than 5.4 million according to the 2010 Census.

For few moments, however, I’d like to shift your attention to a different group of people with student loan bills to pay. Yes, people who are, by definition, still debtors–but distinctive in that, at present, they’re making payments. People (to cite an example close to home) like me.

First, allow me to give you a brief rundown of how I came to write this–and what, exactly, this is really about. Yesterday afternoon, Philadelphia-based tax genius and (much more prolific) co-contributor of mine on, Kelly Phillips Erb (also known by her superhero alter ego @taxgirl on Twitter) wrote an excellent article, Why Does Congress Love Houses More Than Students?, about incongruities in the U.S. Tax Code when it comes to incentives for buying ugly, over-sized houses crammed onto tiny, treeless parcels of land versus investing in one’s education.

Ms. Erb’s exceedingly sharp–in both senses of the word–commentary is bolstered by a straightforward analysis of how current U.S. tax laws reward buying stuff (i.e. real estate) but dispirit investing in ideas (i.e. the future). In short, she argues that Congress is “making it harder for the middle class to go to college. But we’re making it easier to buy a house.”

Ms. Erb’s blog ends with two particularly cogent and compelling paragraphs. She writes:

“Somehow, we have decided, as a society, that it’s more important to own a flat in Manhattan or a McMansion in Fulton County than it is to have a college education. That is what we decided, right? Because that’s what Congress seems to think (for a history of the student loan interest deduction, check out this prior post).

I’m not a fan of creating tax incentives to solve or encourage behaviors. But the fact is, we do just that all of the time. We do it to kickstart the housing market, to encourage spending and to target hiring. If we’re going to accept that tax incentives are used to drive behavior, what better behavior could we seek than encouraging students to pursue an education? Why have we seem to have decided that investing in houses (as well as stocks and bonds) should be more tax-favored than investing in education? And more importantly, what does that mean for our children?”

I’d like to extend Ms. Erb’s position and suggest that it in fact overlaps a related question about federal policy related to student loan debt collection and student loan delinquencies under the Direct Loans program. To do so, I’ll now bring this conversation back to my own experience. I funded parts of my private undergraduate and public graduate school education with subsidized federal student loans. As previously noted, my loans are currently in repayment (and will be until I’m joyriding in a Hoveround electric mobility scooter). But as Ms. Erb explains in her post, for many borrowers faithfully paying down their loan balances each month, the maximum annual interest deduction for these obligations is capped at $2,500. Buying a house or two? Under current rules you can deduct up to $1.1 million of the interest on your loans.

Yet even that whopping $2,500 student loan interest deduction comes with a significant catch. As a married couple filing jointly, if your combined income is greater than $150,000 you cannot claim a student loan interest deduction; the individual taxpayer ceiling is even lower. But surely there are limits on home loan interest deductions? Nope. No caps whatsoever related to filing status or income. Zero. Nada. Zip. Which is, to use my example, precisely the amount of the annual student loan interest deduction I am allowed to claim–even though my monthly student loan bills fall somewhere in a range between making a mortgage payment and leasing a 2012 Porsche Panamera Hybrid.

I’m not whining about my student loan payments. I’m well educated, and I understand that growing my brain came at a price I chose to pay. But when one considers that ED’s Default Division reported late in 3Q2011 that its portfolio was sized at $33.5 billion, I just have to ask a question: how many federal student loan borrowers currently in either default or delinquency status might be helped if they were allowed under federal tax laws to deduct a greater percentage of the interest they pay on these loans? And by “helped” I mean: how many more of them might in fact wind up in repayment rather than delinquency or default?

In this narrow context, I don’t wish to debate the economic value of a college education versus that of propping up a beleaguered U.S. housing market. My concern is focused squarely on the massive delta between a $2,500 interest deduction cap and another cap almost 500 times that. It’s there, to use a Twainesque metaphor, that the path of least resistance is what makes the river crooked.


Michael Klozotsky is the Chief Content Officer at He doesn’t drive a Porsche.

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