…amortization of student loans

By kayestrong

Businesses have a nifty, IRS-friendly way to insure their ability to replace worn/torn, deteriorated or obsolete property and, thus, sustain their long term livelihood. According to the IRS businesses are permitted to take an income tax deduction to recover the depreciation cost of tangible property such as buildings, machinery, vehicles, furniture and equipment and some intangibles such as patents, copyrights and computer software. Just for clarity, depreciation is to tangible assets, what amortization is to intangible assets.  These write-offs are no small chunk of change!  In 2009 depreciation accounted to $1, 866.2 billion dollars, $1,874.9 in 2010, $1,950.1 in 2011 and 2012 shaping up to be even better—$  $2,004 billion dollars!

Now, to be considered depreciable an asset must possess at least two characteristics: a limited useful life and depreciation estimable with reasonable accuracy.  I would argue that the human capital investment, i.e. a college degree, as an intangible asset on par with intellectual property or computer software and easily meets both criteria.  Education has a limited shelf life.  Knowledge churns daily. I would further argue that it—like the aforementioned intangible assets—suffers from “consumption, expiry, obsolescence or other decline in value as a result of use or passage of time.”

So what my point?  Simply put, that human capital investment is as important, if not more important, to our economy’s long run growth than physical capital investment.  That without the ability to write down the “consumption, expiry, obsolescence or other decline in value as a result of use or passage of time,” we stand to stymie the conduit for stimulating economic growth in the 21^st century. And this is all the more true in the current macroeconomic environment.

According to the Survey of Consumer Finances released by the Federal Reserve last week:

 “Families’ income also continued to decline, a trend that predated the crisis but accelerated over the same period. Median family income fell to $45,800 in 2010 from $49,600 in 2007.”

“The survey also found a shift in the reasons that families set aside money, underscoring the lack of confidence that is weighing on the economy. …Fewer said they were saving for retirement, or for education, or for a down payment on a home.”

“…the share of families with education-related debt rose to 19.2 percent in 2010 from 15.2 percent in 2007. The Fed noted that education loans made up a larger share of the average family’s obligations than loans to buy automobiles for the first time in the history of the survey.”

In fact, student loan debt now at more than a trillion dollars exceeds the nation’s credit card debt!  

All this on top of labor market unable to absorb new workers—estimates of joblessness and underemployment range above fifty percent for college graduates.

The Great Recession effectively drove home the implication of “skills obsolescence” for hundreds of thousands of laid off workers.  We need stretch the imagination very little to see the pending implications of “education obsolescence” for hundreds of thousands of new graduates!

Allowing the cost of education to be amortized like patents and computer software would seem to be a legitimate, equitable method for addressing the current student debt crisis, as well as, for insuring the human capital investment pipeline for long run economic growth remains open despite short run fluctuations in the economy. 

Am I wrong?

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Kay Strong, Ph.D., Southern Illinois University, M.T., University of Houston, M.A., Ohio University; Associate Professor at Baldwin-Wallace College; Areas of expertise: international economics, contemporary social-economic issues, complexity and futures-based perspectives in economics. E-mail: kstrong@bw.edu