CAPPS - Avocacy and Communication Professional Development

California Association of Private Postsecondary Schools

Tax Breaks for Students

03/04/2014

Inside Higher Ed.  Mar 4, 2014.

President Obama’s budget for the 2015 fiscal year will call for extending a tuition tax credit and providing tax relief to student loan borrowers whose debt is forgiven under income-based repayment plans.

The White House on Monday night outlined, in broad terms, several of the tax proposals in the president’s budget, which will be released formally today.

The budget will ask Congress to make permanent the American Opportunity Tax Credit, which currently expires in December 2017. The administration says the credit will provide an average benefit of $1,110 to 11.5 million families. The benefit provides up to $2,500 in partially refundable tax credits for tuition.

Obama is also proposing a simplification of taxes for nearly all Pell Grant recipients. The administration wants Congress to clarify tax credit rules and simplify calculations for the credit so that Pell recipients see a reduction in their taxes or an increased tax credit.

A tax proposal unveiled by some House Republicans last week called for a permanent American Opportunity Tax Credit but also proposed consolidating numerous higher education tax breaks.

range of different groups focused on redesigning federal student aid have pushed for simplifying the billions of dollars that the federal government doles out each year in loans, grants and tax credits for higher education.

The Obama budget will also seek to exempt from taxation the student loan forgiveness the federal government provides to borrowers after they have made payments for at least a decade through income-based repayment programs. The federal government forgives the debt of borrowers working in the public or nonprofit sectors after as few as 10 years. Other income-based repayment programs forgive outstanding debt after 20 or 25 years of repayment.

Student advocacy groups and think tanks have previously called for such a change, but previous Congressional efforts to stop taxing federal student loan forgiveness have been unsuccessful.

The budget plan is largely a political document aimed at highlighting the president’s priorities and is geared toward rallying the Democratic base in an election year. The proposal comes several months after Congressional negotiators struck a two-year budget agreement that set top-line spending levels for the current 2014 fiscal year as well as the 2015 fiscal year that begins this October.

Senate Democrats have said they will not produce a 2015 budget but will instead proceed to the process of allocating money to individual programs across the government within the confines of the two-year budget deal.

House Republicans, meanwhile, plan to unveil a budget later this month that will propose an overhaul of many social programs. Representative Paul Ryan of Wisconsin, the House Budget Committee chairman, on Monday published a precursor to the Republican budget, releasing a 204-page report that criticizes the efficacy of a wide range of federal anti-poverty policies, including several programs related to higher education and student aid.

For instance, the report says that “though research is mixed, there is empirical evidence that increases to Pell [grants] do increase tuition in some situations.”

The Ryan report is also critical of the American Opportunity Tax Credit, pointing to evidence that suggests the credit is not effective in boosting college access and does not make college more affordable because the benefits are absorbed by states and institutions. The document does not offer any policy prescriptions but says the program-by-program evaluation is a “first step” in overhauling federal social policies.