Congress expands student loan tax break for middle-income borrowers
H.R. 7536 — GRADUATE Act · Filed by Dan Goldman (D-NY) · 8 cosponsors · Introduced Feb 12, 2026 · Referred to committee
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What it does
This bill expands the federal tax deduction for student loan payments. Currently, taxpayers can deduct up to $2,500 per year in student loan interest only. The GRADUATE Act allows deduction of payments toward both interest AND principal, and raises the annual cap to $10,000 plus $500 per dependent. The deduction phases out for higher earners ($125,000–$150,000 for single filers; $250,000–$300,000 for joint filers). The benefit flows directly to taxpayers as a reduced tax bill.
Why we flagged it
The bill's sole operative mechanism is a direct expansion of a personal income tax deduction. It increases the annual cap, broadens what payments qualify, and phases out at specified income thresholds—a straightforward tax relief measure for individuals carrying education debt.
What the text implies
- The $500-per-dependent bonus may incentivize higher-income families to claim dependents strategically, though the phase-out limits this effect for very high earners.
- Expansion to principal payments (not just interest) may reduce demand for income-driven repayment plans, which are designed to cap payments for lower-income borrowers—a subtle shift in who bears the cost of student debt.
The full analysis lists 3 implications of this text.
Who stands to gain
Individual taxpayers with student loan debt; Middle-income earners ($125k–$150k single; $250k–$300k joint)