WASHINGTON — Newly minted doctors and other health care workers may lose a critical tax deduction under the tax code overhaul House Republican leaders unveiled Thursday.
The proposal repeals the student loan interest deduction — a policy that helped more than 12 million Americans who racked up education loans save up to $2,500 on their tax bills in 2015. The popular policy doesn’t require taxpayers to itemize their deductions to claim it — instead, it’s available to anyone paying interest on either private or public student loans who makes less than $80,000 in a year.
Many of those student loan holders are recent medical school graduates, who make a median $54,600 in their first year of residency, according to the Association of American Medical Colleges.
A full 75 percent of the graduates in the Class of 2017 held an average $190,694 in total student loan debt, according to the latest survey data from AAMC. The numbers are even higher for osteopathic students — 86 percent of the 2016 class graduated with an average $240,000 in debt, according to the American Association of Colleges of Osteopathic Medicine.
Interest rates on that debt hover between 5 and 7 percent.
“What that really translates to is, whenever you make payments on your student loans throughout residency, all of those payments are literally going toward interest. They’re tax-deductible,” said Dr. Daniel Gouger, the Education and Advocacy Fellow for the American Medical Student Association. “When you’re thinking about how much interest you’re having to pay when your principal is over $200,000, it’s an incredible amount of money.”
House Republicans defended the decision to eliminate the student loan interest deduction to help clarify the complicated tax rules around education. They have also said most Americans will owe less in taxes, overall. The Ways and Means Committee will consider the proposal next week, and majorities in the House and Senate would have to approve it before President Trump could sign it.
Repealing the provision is also an attractive way to help pay for the other tax cuts in the package. The change would save the government about $47.5 billion over 10 years, according to a nonpartisan congressional analysis.
Several of the groups that often advocate on behalf of medical students and study medical student debt burdens, including the AAMC and the AACOM, said they were still reviewing the Republican proposal.
But Gouger warned that the policy change would have a “disproportionate impact” on the health care workforce — and in particular, on poorer Americans more likely to be deterred from medical school if the effective cost of attendance rises. The problem is beyond doctors, too, he said. Pharmacists, nurses, physical therapists, and others in the health care workforce also face years of training at expensive institutions.
“We spent all summer talking about health care policy, health care delivery systems, and access to health care, and a central component of that is we have to have physicians and other health care providers in order to care for people who are sick,” he said. “If we continue, through tax policy or education policy, to create more and more barriers that prevent people from pursuing those careers, then we’ll have much bigger problems.”