Another state is taking a hard-line look at how the student loan crisis is affecting their citizenry and what they can do to help. 67% of Wisconsinites graduate with student loan debt and the average owed is more than $26,000. The state ranks #10 in the US for its heavy percentage of those relying on student loans to get through college. This also means that a great number of graduates are not able to participate meaningfully in the state’s economy or housing market because of this debt.
To address this, two Wisconsin Democrats have proposed a “Higher Ed, Lower Debt” bill they hope will address this growing crisis (if it can gain passage). The Wisconsin solution differs from other states we’ve written about recently because it addresses those already in crisis – which is a refreshing and welcome change.
How Wisconsin’s Program Would Work
To address the student loan crisis in their state, Wisconsin would establish a student loan refinancing authority. Of course those with federal loans can consolidate, but you rarely get a better deal on interest by doing so and private loans can’t be part of the mix of a public consolidation. The authority would buy loans – private or federal – and refinance them at lower interest rates. But that’s not all, and it’s this next part that really makes this plan enticing…
The amount you pay each year in student debt would be written off as a state tax deduction! Not the interest (like it is on federal taxes), but the total of whatever you pay in! If you’re paying in $200 each month in student loans, that’s $2,400 that would come off of your income before taxes are calculated. This could save you a couple of hundred dollars a year (give or take depending on your applicable tax rate and taxable income) in taxes – or increase your refund by that amount!
How Much Could Refinancing Save You?
More than 750,000 Wisconsin residents have federal student loans and many more may have private student loans as well. If your loan is the average of $26,000 and you borrowed at 6.8%, a standard 10 year repayment period would see you repaying $300 per month. If you could refi at 4%, your payments would drop to $260 and save you $40 per month, or close to $500 per year. The larger your debt is, the more your savings will be in long-term interest paid.
Questions We Have
Here are a couple of questions we have about this program that we hope the Wisconsin legislature is considering when writing this proposed legislation:
#1 Would there be income based repayment available?
#2 If you change your loans from federal to state (under a consolidation), would you lose any protections you have under federal law (access to flexible payment, disability discharge provisions, deferment, forbearance, etc).
#3 Will loans refinanced under Wisconsin’s proposed authority still be eligible for Public Service Loan Forgiveness?
#4 Will there be any forgiveness provision for those who simply cannot pay their loan balances or after a set number of years of payments as with IBR?
#5 If you don’t sign up for a state refinance, can you still deduct your loan payments from your income taxes? If so, can you deduct payments on both federal and private loans?
#6 Will there be any income phase out on the deductibility of student loan payments on state income taxes.
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