• Tax Policy

    Federal Policy Priorities––Student-Related Tax Policy

    • Make permanent the American Opportunity Tax Credit (AOTC) as established in the American Recovery and Reinvestment Act. The AOTC assists low-income students by providing a tax credit up to $2,500. Taxpayers receive a tax credit based on 100 percent of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials. Up to a maximum of 40 percent of the amount of the credit is “refundable.” (Extended five years by the American Taxpayer Relief Act.) 

    • Advocate for a provision in the AOTC that exempts Pell Grants from being applied toward tuition and fee costs that are used to determine the amount of the tax credit, in order for low income individuals to take advantage of the full credit. 

    • Support the establishment of a federal tax exemption on the forgiven loan amount for borrowers in the Income Contingent Repayment (ICR) and Income Based Repayment (IBR) programs.

    • Make permanent changes to the Student Loan Interest Deduction (SLID), a federal income tax deduction that permits single taxpayers with a modified adjusted gross income less than $70,000 ($145,000 for joint filers) to deduct up to $2,500 in federal student loan interest payments. (Made permanent by the American Taxpayer Relief Act.)

    Federal Policy Priorities––Institution-Related Tax Policy 

    • Retroactively extend and make permanent the Individual Retirement Account (IRA) Charitable Rollover, which expired at the end of 2011. 
    • Extend or make permanent Section 127 of the tax code (Employer-provided Educational Assistance) that permits employers to offer up to $5,250 in tuition assistance to employees annually. Employers and student employees are eligible for these tax benefits. 
    • Advocate for reform of the federal estate tax in such a manner that encourages investment in charitable organizations and local communities, and balances the needs of farmers and small business owners. Without an extension of current law, the exemption would return to $1 million per person, taxed at a rate of 55 percent. Under current law the exemption is $5 million per person.

    Summary

    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.

    Student Related Tax Policy

    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.

    Institution-Related Tax Policy

    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.