ACE, along with 10 other higher education associations, sent comments Friday to Rep. Dave Camp (R-MI), chair of the House Ways and Means Committee, on his recently released comprehensive tax reform plan. The proposal includes a range of changes to portions of the tax code that are designed to help students and families pay for college and assist students in repaying their student loan debt.
The current tax code contains a number of provisions that together create a framework that functions as a kind of “three-legged stool” intended to advance three important goals: 1) to encourage saving for higher education; 2) to help students and families pay for college; and 3) to assist with the repayment of student loans.
The groups write that they are pleased that the Camp tax reform plan seeks to create a simpler, consolidated higher education tax credit. However, they believe that, ultimately, the plan would undermine the three-legged stool framework by making substantial changes to a number of higher education tax incentives.
Among the most positive steps forward, the bill maintains the expanded eligible expenses of the American Opportunity Tax Credit (AOTC), which includes required course materials, as well as permanently extending and indexing a reconfigured AOTC.
In a provision particularly important to the neediest students, the bill increases AOTC refundability to 60 percent from the current 40 percent, and permits eligible students to get the maximum value of $1,500 in refundability more easily. Equally important, the Camp bill better coordinates the interaction of the AOTC with the Pell Grant, and, for the first time, completely excludes the Pell Grant from taxable income.
Unfortunately, the draft legislation would make other changes that would eliminate benefits for many students and thereby adversely impact their financial ability to pursue an associate or bachelor’s degree, graduate education, or lifelong learning.
“In short, we are concerned that the bill takes away benefits from one set of students—both low- and middle-income, as well graduate students—to pay for aid to a narrower set of low-income students,” the groups write. “While the goal to enhance assistance to the neediest students is laudable and certainly a goal we share, we do not believe it should be at the expense of other students and families who may be struggling to invest in a higher education.”
The comments also address tax credits that would be eliminated entirely under the Camp plan, including Section 127 Employer-provided Educational Assistance and Section 117(d) Qualified Tuition Reductions, as well as the above-the-line deduction for student loan interest and the tax exclusion of the discharge of student loan debt in several federal and state loan forgiveness programs.
The chances of passage for the Camp plan or any other comprehensive tax reform bill this year are slim. However, the GOP budget plan released last week by House Budget Committee Chair Paul Ryan (R-WI), which can be read as a statement of House fiscal priorities for the coming year, discussed the need for comprehensive tax reform and referenced the Camp plan.
While the House will soon be losing the author of this particular plan—Camp announced March 31 that he will retire at the end of this year—many Republican members of Congress have long advocated for tax reform.
In lieu of a larger bill, the Senate Finance Committee last week marked up legislation to extend various tax breaks that expired at the end of 2013, including a two-year extension (through 2015) for the above-the-line deduction for qualified tuition and related expenses, the IRA Charitable Rollover and the R&D tax credit (click here to read ACE’s letter advocating for these extensions).
But while the Senate committee plans to advance its bill soon, the House is unlikely to do so, which means final congressional action will likely not take place until a probable lame-duck session in the fall.