It has always struck me as fundamentally unfair that student loan payments–especially interest on those payments–are not deductible from income for income tax purposes. Borrow $200,000 for business equipment and there’s no argument that the principal and interest on that loan is deductible from income. Borrow $200,000 to obtain a law degree (as many of my younger colleagues have) and it’s “too bad, so sad.” Yet, when it comes to advancing one’s earning capacity, most of the folks intelligent and driven enough to attend law school are much better off investing in their education than in business equipment.
The problem is particularly acute when it comes to student loans and child support. Often, for the purpose of setting child support, a parent has been “imputed” a higher income than they actually earn while attending college or graduate school because they are underemployed. Upon graduation they receive a substantial income boost from obtaining a degree. Yet the court doesn’t take into consideration the years support was set on an inflated “imputed” income and give them some break. Rather, the court will, if asked, immediately set child support on the new, higher, income. Further, a substantial portion of that parent’s new, higher, income will often be used to pay back student loans (often 20% or more of net income).
Due to income tax and withholding, a parent earning $5,000 a month but paying $1,000 a month in student loans has less net income than a parent earning $4,000 a month with no student loans. However the parent making the $5,000 a month with $1,000 a month in student loans will likely pay more child support (or receive less child support) than the parent earning $4,000 a month with no student loans.
Is there a remedy for this obvious injustice? Maybe. S.C. Code of Regulations R. 114-4710(B) begins, “Deviation from the guidelines should be the exception rather than the rule.” However it continues, “When the court deviates, it must make written findings that clearly state the nature and extent of the variation from the guidelines. These Child Support Guidelines do not take into account the economic impact of the following factors which can be possible reasons for deviation.” It then lists three factors that could potentially be“possible reasons for deviation” as it regards student loan debt:
1. Educational expenses for the child(ren) or the spouse (i.e., those incurred for private, parochial, or trade schools, other secondary schools, or post-secondary education where there is tuition or related costs);
3. Consumer debts;
8. Monthly fixed payments imposed by court or operation of law;
I’ve been aware of this issue for well over a decade but never had to actually try it. Further, as this regulation invests a lot of discretion in a family court judge–whether to make student loans “the exception rather than the rule;” whether to grant what is only labeled a “possible reason[] for deviation”– any trial is only going to be the opinion of that one judge. Ultimately an appellate court will need to weigh in on this matter if we are going to have state-wide uniformity.
My opinion is that payments on any student loan debt incurred to obtain a degree that a parent is utilizing in his or her current employment should be deducted from income for the purpose of setting child support. However that is simply my opinion. Until the appellate courts are provided an opportunity to address this issue, there is no clear answer. Some intrepid family law attorney would be doing many of his or her colleagues (and a whole lot of other debt-ridden college graduates) a solid by litigating this issue at trial and, if not prevailing, taking it up on appeal.
Greg,
For what’s it’s worth, I have had this issue come up in my prior life as a child support enforcement attorney. I had a case in Williamsburg County where the presiding judge held that the father would not have his earning capacity if he didn’t have his degree, so he was given credit for his student loan payments. Only happened the once, but I thought that it was interesting that it happened at all.
That’s the situation I’m in right now. I pay $675/month on student loans and I got my degree after my divorce. Now that custody was flipped the agreement was my loans would be deducted from the support amount because I wouldn’t make the money I make now had I not gone to school. Before I got a degree I was making $20,000/yr after now I make 55,000/yr. of course my ex went back on the agreement so out of the 4,500/ month before taxes and insurance so that’s 30% off the bat so that leaves appx 3,200 then pay the student loans and child support that’s 1,500/ month then my car payment ($370) which I bought before the custody flipped, vehicle insurance ($220) and phone (75). That leaves $985 for rent utilities groceries, and not to mention air fare since my child’s in a different state. That’s impossible plain and simple. While that jerk makes 120,000/yr and because he got married again and won’t stop popping out children with his new wife they credit all of those kids to him. My rent is more than his and his wife stays home. It so wrong. Trying to flip custody back and I’m not asking for support. I think once parents make a certain amount each no more support period. Split the child’s expenses 50/50. There is no reason I should pay child support to someone who’s making double what I make. Period.
Good article.
Joe Mendelsohn
I don’t necessarily disagree, but I think there are some nuances that may prevent a bright-line rule.
In my own divorce case, my ex-husband argued that he managed to earn two master’s degrees and a Ph.D without any debt by strategically pursuing opportunities for employment at the school/reduced tuition, and by living like a pauper. He scoffed at my law school loans because I lived alone in a nice apartment during school (as opposed to pinching pennies in a damp basement apartment with roommates), wasn’t frugal enough with my earnings from summer clerkships, etc., etc.
In retrospect, he may have had a point… at least to an extent. Had I known how old I would be when I finally paid those dang things off, I would have “suffered” with some roommates!
How much of student loan debt is truly unavoidable in the pursuit of the education/higher income, and how much is incurred just because it’s a quick and convenient (at the time) way to get what you want? Was the degree obtained at a more expensive out-of-state or private college, when the same degree could have been obtained from a local college? How much of the loan debt was used for lifestyle or the “college experience”? And did the person’s career track and income trajectory truly flow from the degree (i.e., medical school), or does he have a biology degree under his belt while pursuing a career as a general contractor?
Just food for thought (paid for with cash, NOT student loans!)
If you’d bought a car for your business, the IRS wouldn’t care whether it was a Honda Fit or a Mercedes S class, you’d be able to deduct it as a business expense. An “economize” argument is only marginally relevant.
I don’t necessarily disagree, but I think there are some nuances that may prevent a bright-line rule.
In my own divorce case, my ex-husband argued that he managed to earn two master’s degrees and a Ph.D without any debt by strategically pursuing opportunities for employment at the school/reduced tuition, and by living like a pauper. He scoffed at my law school loans because I lived alone in a nice apartment during school (as opposed to pinching pennies in a damp basement apartment with roommates), wasn’t frugal enough with my earnings from summer clerkships, etc., etc.
In retrospect, he may have had a point… at least to an extent. Had I known how old I would be when I finally paid those dang things off, I would have “suffered” with some roommates!
How much of student loan debt is truly unavoidable in the pursuit of the education/higher income, and how much is incurred just because it’s a quick and convenient (at the time) way to get what you want? Was the degree obtained at a more expensive out-of-state or private college, when the same degree could have been obtained from a local college? How much of the loan debt was used for lifestyle or the “college experience”? And did the person’s career track and income trajectory truly flow from the degree (i.e., medical school), or does he have a biology degree under his belt while pursuing a career as a general contractor?