The tax code has been a strategic tool for middle-income families to address costs associated with a college education. While tax policy does not reduce the college costs at the outset, it does provide assistance to students and families on a retroactive basis. As such, AASCU strongly supports reform of multiple current tax credits and tuition deductions that involve tax benefits for both students and institutions.
AASCU urges policymakers to create a simpler and consolidated higher education tax credit to provide students and families with assistance in financing baccalaureate and post-baccalaureate education and lifelong learning. Most important for AASCU is Congressional action that extends or makes permanent provisions that will directly benefit students. The AOTC is designed to assist low-income students, and for those students who have no tax liability, 40 percent of the tax credit is refundable to the student. In addition, AASCU will be seeking legislative changes that improve the AOTC and increase the amount of tax relief. We also support an expansion of eligible expenses, increases in the phase-out of income thresholds, and a provision to replace current limits with a lifetime cap of $15,000. One key aspect of these reforms is to stress the priority for maintaining the 40 percent partial refundability of the current AOTC to aid in making postsecondary education more affordable. Finally, Pell Grants should not be used in determining the amount of the tax credit. AASCU supports a provision that exempts Pell Grant awards from being applied toward tuition and fee costs in order for low income individuals to take full advantage of the AOTC.To soften the growing student debt burden, students who are required to borrow should be allowed a Federal income tax deduction of up to $2,500 in federal student loan interest payments. Further, student borrowers in the Income Contingent Repayment and Income Based Repayment programs should receive a federal tax exemption on the forgiven loan amount. Currently, the amount forgiven is considered taxable income, thus placing a tax burden on an individual with limited income. These measures make college more affordable by reducing the total costs of borrowing to students.
Charitable and other tax provisions are valuable federal mechanisms that provide the opportunity for individuals to contribute to a variety of campus priorities, such as student scholarships, investments in teaching and learning, facility enhancements, and research. AASCU calls for retroactively extending and making permanent the IRA Charitable Rollover, which promotes institutional giving by allowing IRA owners starting at age 70 ½ to make tax-free charitable gifts to an institution of higher education, up to $100,000 per year. Employers would be able to offer up to $5,250 in tuition assistance to employees annually and receive a tax benefit if the Employer-provided Educational Assistance Benefits provisions of the Internal Revenue Code are extended or made permanent. A majority of states do not charge an estate tax, fearing that it would discourage wealth producers, but the issue is very much alive in the tax reform debate among federal policymakers. The federal government views the estate tax as a revenue source. As policymakers examine reform of the estate tax, they are encouraged to seek a balance in the needs of farmers and small business owners while encouraging investment in charitable organizations and local communities.