The 1986 tax reform killed student loan interest deductibility under an anti-subsidy argument

Evidence

The next major shift in education tax policy took place in 1986, when the deduction for all personal interest—except mortgage interest—was repealed, and student loan interest was no longer deductible. At the same time, federal tuition subsidies were being branded as an unfair burden to taxpayers who did not attend college. The Reagan administration’s Office of Management and Budget director, David Stockman, testifying before Congress in 1981, referred to federal subsidies for higher education like Pell Grants and guaranteed student loans as “entitlements that we created in the 1970s” and “excessive”; shortly after the 1986 Tax Reform Act became law, Bill Bennett, the secretary of education, wrote in a New York Times op-ed: “On average, college graduates earn $640,000 more over their lifetimes than nongraduates do. It is simply not fair to ask taxpayers, many of whom do not go to college, to pay more than their fair share of the tuition burden.” — Dorothy A. Brown, The Whiteness of Wealth, 321

Categorization

• XREF: Shows how the student loan deduction’s rocky history is embedded in Reagan-era fiscal politics, and the provably false Bennett claim ($640,000 lifetime gap) that whitewashed the private gain. — connects to: Reagan attacked free tuition as a moral and fiscal failure before he was president — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 255