American Opportunity Tax Credit Skips Over Many Grad Sudents

A new bill passed by the House of Representatives last week would allow tax breaks for many higher education students with the exception of many graduate students.

Passing with a vote of 227-187, the new American Opportunity Tax Credit would create a permanent tax credit allowing students up to $2,500 a year for tuition and other school expenses.

The current credit, which involves four overlapping deductions, is expected to expire with the close of 2017.  The new bill would come without an expiration date.

“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,” said Rep. Diane Black, (R-Tenn.), who sponsored the bill.

While President Barack Obama supports the bill, some of the administration is in opposition, as it would add $97 billion to the budget deficit over the next 10 years.

“It’s permanent, there’s no provisions to pay for it, and it buries us in more debt,” Rep. Charles Rangel (D-N.Y.) said.

According to Dave Camp, House Ways and Means Committee Chairman, the permanency would offer students and their families a tax credit they can rely on.

Education officials also oppose the bill as students can only claim the credit for their first four years at school, which means graduate students and older students will lose out.

“Undergraduates who take longer than four years to graduate would be impacted,” said Rep. Sandy Levin (Mich.), the top Democrat on the House Ways and Means Committee.

In order to qualify for the credit, an individual must make no more than $90,000 a year.  Married couples must make less than $180,000.  Pell Grants are excluded from income qualifications, and those receiving the grant must use that money first before being allowed to use the tax credit.

Kyle Pomerleau, an economist with the Washington D.C.-based Tax Foundation, discussed many reasons why the tax credit was not beneficial to many families.  Because families have to know about the tax credit to apply for it, Pomerleau argues that the credit will be more beneficial for middle and high-income families.  He went on to say that these families will benefit even further because the US tax system taxes those who make more at a higher rate, allowing higher-income families to receive more credits.

“So (high-income families) know more about it, and it’s to their benefit to take it,” he said.  “Tax credits, or spending through the tax code, are not well targeted,” he said. “Just because the law says ‘X’ people should benefit from the money, it doesn’t always turn out that way.”

According to the independent tax policy research group, 30% of tax credit benefits are going to individuals whose income is higher than $100,000.

A letter from the American Council on Education representing university presidents was sent earlier this month to lawmakers in opposition to the bill.  Also endorsed by nine other higher education groups, the letter states:

“The bill would negatively impact many low- and middle-income students and families who benefit under current law.  It also would harm graduate students and lifetime learners.”