Bill would provide grad school loan tax deduction

The Revenue Committee heard testimony Feb. 12 on a bill intended to encourage highly educated individuals to live in Nebraska.

Under LB787, introduced by Columbus Sen. Paul Schumacher, federal adjusted gross income would be reduced by an amount equal to the principal paid by a taxpayer on any qualified education loan during a taxable year.

A qualified education loan is defined as any indebtedness owed to a nonrelated entity that is incurred by a taxpayer solely to pay for costs necessary to obtain a graduate degree from an institution of higher education.

The reduction would be available for the first 10 taxable years after a taxpayer completes a course of study resulting in a graduate degree.

Schumacher said the idea came from a conversation he had with a young woman struggling with a six-figure student loan debt from law school.

“She had done all the right things and we were taxing her on the money she made to pay that student loan down,” he said. “It occurred to me that if she’d paid that six figures of debt researching and developing some computer program, we’d have let her write it off … we’d have called it economic development.”

Schumacher said encouraging potential high-wage earners to put down roots in Nebraska would pay off in greater tax revenue in the future.

Caryn Vincent, a University of Nebraska Medical Center graduate student, testified in support of the bill. Vincent said she will have significant loan debt when she graduates and that LB787 would provide an incentive for young professionals in similar situations to stay in the state.

“We have to be able to recruit the kind of talent necessary to grow Nebraska’s future economy,” she said.

Liz Neeley, executive director of the Nebraska State Bar Association, also supported the bill, saying it could be an important tool for attracting new lawyers to rural parts of the state. Law school debt has nearly doubled in the last 10 years, she said, with debt loads averaging $150,000 to $200,000.

As a result, Neeley said, most recent graduate cannot afford to practice in rural Nebraska where salaries are low.

“New lawyers are pressed instead to look for jobs in larger cities,” she said.

No one testified in opposition to LB787 and the committee took no immediate action on it.