The Schaals borrowed $10,000 to finance the tuition costs, and they had planned to repay the loan over 10 years and deduct the interest on their federal tax returns.
Not anymore.
Under the 1986 tax law, the interest on education loans, like other consumer loans, will no longer automatically be tax-deductible.
So John Schaal, 37, like a lot of other parents who want to plan ahead to finance their children's college education, had to change his plans. Now, Schaal, a marketing manager for Conrail, is going to accelerate payoff of the loan. "I'll no longer get a tax benefit" under the new rules, he said recently.
All across the country, forward-thinking parents who want to get a jump on financing their children's education are facing a new wrinkle: the 1986 tax law.
The new rules, which go into effect Jan. 1, will have a "devastating effect" on education, said Harvard economics professor Lawrence B. Lindsey, who has written a scholarly paper called "Tax Reform and Education."
Because borrowing will become more expensive for many people, the new rules will alter some of the ways parents save for their children's education. Indeed, the only way education loans would get a tax break under the new law is if they are tied to the equity in a person's home.
And some students will find college more costly because, under the new rules, full scholarships and fellowships, for the first time, become partly subject to taxation.
"The effect of all these provisions is to limit the ability of parents to save for their children's education," Lindsey said.
