The following represents the text of a letter I sent today to Senators Blumenthal and Murphy, as well as Representative Courtney. It remains to be seen if this idea gains any traction as a result of my contact, but if they do respond I will be sure to update.
Health care is a disaster, at least insurance is for my family. I have lost too much sleep over this crisis and there is too much wrong to fix in one letter. This is one small, but significant way to at least start and fix the mess the Affordable Care Act has made for my family.
My name is Deborah Barbi. I live in your district with my husband, Massimiliano. I am twenty-six years old and work as an attorney, while my twenty-five year old husband works for a luthier. We have bought our health insurance through Access Health CT for several years, and have used advanced premium tax credits to help afford our high-deductible plans.
When I graduated from law school, I faced approximately $67,000.00 in government-subsidized student loans. My husband and I made a commitment to pay these back as quickly as possible, even though it would be a significant financial burden and would delay our being able to buy a house. We have made every payment, and then some, so far in our ten-year payback plan. We would have faced significant consequences if we did not make our payments, and we are glad we are aggressively repaying our debt.
Nevertheless, when I prepared to file our income taxes for 2016, we felt we were being punished by the tax code for paying our student loans while we save up for our home. We have been hit with a tax bill of over $3,000.00, nearly $2,000.00 of which is to repay advanced premium tax credits. The problem, for us, lies in the student loan interest deduction.
The student loan interest deduction is significantly different than the mortgage interest deduction in small but significant ways. And while I appreciate the tax code has recognized a benefit for those young working adults like me for paying off our debts, it would be much more impactful and more equitable if the deduction was treated just as the mortgage interest deduction.
There are two key differences between these deductions, which worked to create a monumental tax liability for my family this year. The student loan interest deduction is an above the line deduction, which tax payers can claim whether they itemize other deductions or not. While this sounds good in theory (especially compared to the mortgage interest deduction which must be itemized to be claimed) it does not compensate for the cap put on the benefit. While homeowners can claim every dollar they spent on their mortgage interest paid last year, students can only claim up to $2,500.00 in interest.
I paid nearly $7,000.00 in student loan interest last year. Again, that is money I was obligated to pay, and was willing to pay to get out of debt. It is money I no longer have, and yet the majority of it is still considered income I have lying around for health insurance premiums and taxes. For most young adults, the student loan payments function like a mortgage, and most of us have to choose between making those payments and buying a house. So why did I pay $4,500.00 in interest for which I received no tax benefit? The government gives great aid to both students and homeowners. The two debts – and consequently the two tax deductions – function almost the same in our society. If they are so similar, why have I been penalized for paying one, while I would be rewarded for paying the other?
The other way these two deductions should be identical but end up being drastically different is their role in calculating our family’s modified adjusted gross income. As you know, one’s MAGI determines whether one qualifies for Medicaid, and how much one may receive in tax credits to help pay for private insurance on the health care exchange. There are only a few deductions which help reduce one’s overall income to determine her MAGI; the mortgage interest deduction and student loan interest deduction are two such figures.
Once again, though, homeowners are at a significant advantage over students when it comes to affording health insurance. My MAGI would have been lowered by $4,500.00 last year if I was able to claim all of the student loan interest paid, rather than the arbitrary cap of $2,500.00. Significantly, I would be able to reduce my MAGI by every dollar I spent on mortgage interest, but not on my student loan interest. As a result, I have an artificially inflated MAGI, have had to pay back advanced premium tax credits, and may not qualify for HUSKY this year.
This year we are expecting our first child. Connecticut, thankfully, has a great Medicaid program for pregnant women. Unfortunately, I may not qualify for Husky A for pregnant woman because of just a few thousand dollars – a difference that would be eliminated if I were able to deduct all of the student loan interest I actually pay, rather than just the first third.
I know it is not a particularly glamorous of flashy issue; it is a minute, intellectual accounting difference that happens to have wide-spread and magnificent impacts on the life and health of my family.
If at all possible, please consider working to make the student loan interest deduction treated the same as the mortgage interest deduction. It would literally change our lives
Thank you for your time and I look forward to your efforts to help our family.
Deborah L. Barbi, Esq.