The tax code offers three major tax breaks to assist students (and their families) in paying for the ever-increasing cost of higher education: the Hope Scholarship, the Lifetime Learning Credit, and the deduction for tuition and fees. Unfortunately, these tax breaks are complex. An IRS publication explaining them is nearly 100 pages long. The General Accounting Office estimates that 27% of students who qualify for these benefits do not claim them, in most cases because they are too complex to understand.
In May the Universal Higher Education and Lifetime Learning Act was introduced in Congress with broad bipartisan support. This legislation, if enacted, would consolidates these three tax breaks into one simple, streamlined, easy-to-understand credit that would combine the best features of the existing benefits. Here is a summary of the bill’s main provisions:
- Consolidate the Hope Credit, Lifetime Learning Credit, and the tuition and fees deduction into one simplified credit providing up to $3,000 in tax relief for students and families. The bill would benefit 9 million students attending four-year public and private colleges and universities and an estimated 1.1 million students attending community colleges.
- The credit would cover 50% of the first $3,000 in qualified education expenses and 30% of the next $5,000 in qualified education expenses. The credit would be available to single filers with incomes up to $80,000 and joint filers with incomes up to $160,000.
- A cash credit would be available to the one-third of all families that pay no income taxes, offering these families for the first time a tax benefit for higher education.
- The credit is available for all four years of college (public or private), two years of community college, two years of graduate school, and is available to individuals that are updating their skills in a training or certificate program.
- The bill expands the type of eligible education expenses that qualify for the tax credit to include room and board, books and supplies, and transportation. This proposal conforms how eligible education expenses are defined in the tax code with how they are defined for the purpose of qualifying for federal financial aid.
One of the bill’s sponsors observed: “The three tuition tax breaks currently on the books are good, but students aren’t tax experts and they shouldn’t have to be in order to determine which one is the right one for them.These students are doing enough reading during the school year and we shouldn’t make them delve into nearly 100 pages of IRS documentation just to get a little tuition assistance.”
This article first appeared in Church Treasurer Alert, July 2007.