For the second day in a row, Gov. Dannel P. Malloy proposed a new tax cut – this time for households with student loan debt.
Malloy, who unveiled his plans Tuesday at Central Connecticut State University, would allow a state income tax credit on the interest paid on student loans. His program would provide about $20 million in annual relief to an estimated 200,000 state filers, for an average savings of $100.
But this tax cut, along with a $20 million tax break the Democratic governor proposed Monday for small businesses that add jobs, would have to be delivered despite a $1.4 billion deficit nonpartisan analysts are projecting for the next state budget.
“The dream of a higher education shouldn’t be out of reach for families across Connecticut,” Malloy said. “We have already put in place plans to help families save for college for their children, but with the rising cost of a higher education, we need to do more to help students struggling with student-loan debt.”
Although the Malloy campaign’s press release touted a maximum state income tax credit of $2,500 – very few recipients would receive close to that amount.
The governor’s proposal effectively would piggy-back on the federal income tax deduction for interest payments on student loans.
The federal government allows many households to deduct the annual interest on student loan payments – up to $2,500 – from the overall income that is taxed. That deduction typically reduces federal tax liability by a maximum of about $830.
Connecticut would reduce eligible households’ state income tax liability by an amount similar to the federal tax savings. Full details of the governor’s proposal were not available.
Malloy also proposed using the state’s credit card to help Connecticut households refinance student loans. The governor proposed using state-backed, taxable bonds to provide capital for the refinancing.
According to the National Center for Education Statistics, the average graduate with student-loan debt from the college Class of 2014 owes $33,000.
Interest rates on federal student loans have been on the rise. Federal Stafford loans, which are the most widely borrowed, now carry a rate of 4.66 percent, up from 3.86 percent last year. But there are borrowing limits on this assistance, and some students turn to more expensive private loans.
The governor proposed several initiatives Monday to spur job growth in Connecticut cities, spearheaded by another tax cut. Malloy specifically wants to restore the job expansion tax credit, offering $20 million in tax relief to small businesses that add jobs.