ACE, Higher Education Groups Ask Congress to Ensure Emergency Student Aid Is Not Taxed
April 21, 2020

ACE and 41 other higher education groups are calling on Congress to ensure that emergency student financial aid grants authorized by the CARES Act are not taxed.

In a letter to the House Ways and Means and the Senate Finance committees, the groups expressed increasing concern over the harm that taxing these grants would do to the very students they are intended to help. The CARES Act allocates approximately $12.5 billion to institutions through the Title IV student financial aid distribution system, half of which must be distributed directly to students.

Among the expenses these grants are meant to cover are food, housing, course materials, technology, health care, and childcare. The IRS code maintains that scholarship or grant aid not spent on "qualified tuition and related expenses" is potentially subject to taxation.

In addition, because the Department of Education has clarified that these funds must first go to the students as cash grants, the groups believe that even grant awards that a student uses to make a tuition payment could also be taxable.

The letter goes on to say that they believe this is an unintended consequence, and that Congress needs to “act swiftly to pass legislation making the necessary statutory changes to ensure that such awards will not be counted as taxable income.”

ACE also joined the National Association of College and University Business Officers and six other associations on a letter to the Treasury Department to ensure that the CARES Act’s emergency grant aid is not treated as taxable income or traditional educational grant aid. However, it appears that the Treasury Department does not believe it has the statutory authority on its own to exclude this grant aid from taxability, so Congress must act.