The increase in the monthly payment would impose a difficult burden on many borrowers. The average income of a recent college graduate is approximately $24,000. Federal, state and local taxes leave the borrower with roughly $16,800 in disposable income (or $1,400 per month). This means that with the higher debt burden, the average borrower would devote roughly 18 percent of disposable income - nearly one in five after-tax dollars - to repaying student loans, compared with 14 percent under current law.
The more money students borrow, the more substantial the impact. The effect on graduate students is especially pronounced. For example, Student B attends school for four years while earning a bachelor's degree and attends graduate school for an additional two years to earn an M.A. degree. Upon graduation, this student would currently owe $34,125. If the interest exemption is eliminated, the student would owe an additional $9,167, or a total of $43,292. This represents a 27 percent increase in educational indebtedness. The monthly payment on the loan would rise from $409 to $520. The extra cost over the life of the loan would come to about $14,000.
Student C receives a four-year undergraduate degree and then spends six years earning a Ph.D. in engineering. This student would owe $68,125 in the cost of loans and an additional $33,028 if the interest is charged. This 48 percent increase in educational debt would leave the student owing $101,153 at the start of repayment. This student's monthly payment would rise from $818 to $1,214 as a result of eliminating the interest exemption. The extra cost over the life of the loan would be about $48,000.