The House approved legislation to consolidate four different tax incentives for higher education into a single tax credit.
The bill, known as the Student and Family Tax Simplification Act, would consolidate the Hope Credit, the American Opportunity Tax Credit, the Lifetime Learning Credit, and the tuition deduction into a single, expanded American Opportunity Tax Credit.
The new AOTC, which would be permanent and partially refundable, would provide a 100 percent tax credit for the first $2,000 of eligible higher education expenses and a 25-percent tax credit for the next $2,000 of such expenses (for a maximum credit of $2,500).
The first $1,500 of the credit would be refundable, meaning that families could receive the benefit regardless of whether they have federal income tax liability. The credit could be used to offset expenses for tuition, fees and course materials.
The credit would be available for up to four years of post-secondary education at qualifying four-year universities, community colleges, and trade and vocational schools. It would begin to phase out for families with incomes between $86,000 and $126,000 (half those amounts for single individuals) to ensure that the credit provides greater benefit and value to low- and middle-income families.
Rep. Diane Black, R-Tenn., a member of the House Ways and Means Committee, applauded House passage of the legislation, also known as H.R. 3393.
“It’s a well-known fact that the cost of education is climbing, and that for too many, the ability to save and pay for college without ending up under a mountain of debt is simply out of reach,” Black said in a statement. “Today’s broken tax code does little to ease that financial burden or provide a sense of security that education will be a reality in the future. Streamlining the number of education provisions and retooling those that are most effective allows us to simplify the code and reduce some of the confusion that exists today. As a result, students can spend less time figuring out how to finance the cost of a higher education and more time developing the skills they need to succeed in a knowledge-based economy. I think we can all agree that it ought to be easier for any family to plan, save and invest in education. I applaud my colleagues in the House for their work today, and I urge the Senate to follow our lead by taking up this important legislation to make higher education more affordable for American students and families.”
Last year, Black chaired the Ways and Means Committee’s Education Tax Reform Working Group, one of eleven bipartisan working groups established by chairman Dave Camp, R-Mich., to make the tax code flatter, fairer and simpler. Her working group is the only group, to date, to produce legislation, she noted. The committee approved the bill last month (see House Committee Passes Education Tax Credit Simplification Bill).
The legislation is supported by the American Association of Community Colleges, the Association of Community College Trustees, the National Association of College Stores, and the United States Student Association.
However, the ranking Democratic member of the Ways and Means Committee, Rep. Sander Levin, D-Mich., pointed out that a number of other educational groups had signed a letter of opposition to the bill from the American Council on Education, including the American Association of State Colleges and Universities, American Council on Education, the Association of American Universities, the Association of Governing Boards of Universities and Colleges, the Association of Jesuit Colleges and Universities, the Association of Public and Land-grant Universities, the College and University Professional Association for Human Resources, the Council for Christian Colleges and Universities, the Council of Graduate Schools, the Hispanic Association of Colleges and Universities, and the National Association of Independent Colleges and Universities.
“In simplifying education provisions within the tax code, this bill leaves behind numerous undergraduate students, graduate students and lifetime learners,” said Levin in a speech on the House floor. “It replaces the Hope Scholarship Credit, it repeals both the Lifetime Learning Credit and the now expired deduction for qualified tuition expenses. And it limits the overall deduction for the first four years of schooling. It harms students across the board.”
He argued that undergraduates who take longer than four years to complete their degrees would be impacted, a change that loses sight of the fact that the median length of time it takes undergrads to get their degrees is more than four years. Adult learners would face higher costs.
"Three in four students are adult learners, who tend to take much longer to complete their degrees because they work full-time, have dependents, serve in the military, or have some combination of the foregoing, and take longer to complete their degree. Low-income and middle-income graduate students would lose out," he said. "In 2013, the Lifetime Learning Credit, which this bill eliminates, served nearly two million students with incomes at or below $75,000, including 1 million with an income of $40,000 or less.”