As Accuracy in Academia (AIA) reported in December, a coalition of academic associations lobbied the federal government to appropriate up to six percent of the upcoming stimulus bill for higher education infrastructure and financial aid. With current estimates of the stimulus bill standing at as much as $850 billion, the suggested six percent would total approximately $51 billion.
According to Politico, the education sector as a whole, including higher ed and other K-12 programs, might receive as much as $140 billion from the stimulus bill, although the final text of the legislation has not been released. “The numbers are sure to be refined as House and Senate Appropriations Committees complete their drafts this week. But like Medicaid, education has clearly emerged as a favorite channel through which Washington will pump massive amounts of aid to states struggling with huge budget deficits aggravated by the economic downturn,” writes David Rogers, senior congressional reporter.
Indeed, the actual cost of the stimulus bill has been fast trending upward. On the campaign trail, Barack Obama said the bill would cost $175 billion; new estimates then varied widely, from $500 billion to $600 billion. The Associated Press assigned a price tag of $775 billion to the bill on January 6.
Rogers reports that the stimulus package, as currently drafted, will likely include:
• $80 billion for “state and local education budgets;”
• $20 billion for “school construction projects;”
• a $500 increase for Pell Grant recipients, “with an estimated cost of about $15 billion over two years;”
• “Additional aid” to “be provided through traditional routes, like Title I or special education programs;” as well as
• a new block grant program, price tag unstated by Rogers, “But the new block grant is expected to be larger than any of these increases.”
Sarah Hebel, writing for the Chronicle of Higher Education, reports that the stimulus bill might also include a revised student tax credit which eliminates the Hope tax credit and the current taxpayer option to deduct up to $4,000 of one’s gross income for student-related expenses. “The current Lifetime Learning tax credit [LLC], worth up to $2,000, would remain in place,” writes Hebel.
These programs could be replaced by a $3,000 tax credit “per year for tuition and other eligible expenses for undergraduate education and the first two years of graduate school,” a provision proposed by Democratic representatives Lloyd Dogget (Texas) and Tom Perriello (Virginia), she reports.
“People who do not earn enough income to owe taxes would be eligible to take a tax credit of up to $1,500,” writes Hebel.
In other words, this legislation would replace a tax credit which currently, at maximum, “zeros out” one’s tax liabilities with a direct educational subsidy for poor families.
According to the Internal Revenue Service (IRS), “A tax credit reduces the amount of income tax you may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself.” They continue,
“The Hope credit is a nonrefundable credit. This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you.”
The LLC cannot be claimed the same year as the Hope tax credit, according to the IRS. Hebel did not clarify whether the proposed simplified tax credit and the LLC could be claimed simultaneously.
Under a combined scenario in which the legislation passes as outlined by Rogers and Hebel, the poorest families who pay no federal taxes could receive up to $6,731 each year from these programs for their college-related expenses. But, as AIA has documented, increases in federal subsidies for tuition are often followed by increased tuition costs.
“President-elect Barack Obama also proposed a new education tax credit during his campaign. His plan would provide a $4,000 credit in exchange for public service,” notes Hebel in her January 12 article.
“That credit would also be available to people who do not earn enough money to owe taxes.”
According to the Obama Administration, the American Opportunity Tax Credit (AOTC) “will ensure that the first $4,000 of a college education is completely free for most Americans, and will cover two-thirds the cost of tuition at the average public college or university and make community college tuition completely free for most students.” “Recipients of the credit will be required to conduct 100 hours of community service,” states the Change.gov website.
By defining the credit as “universal and fully refundable,” the administration would ensure that students and families who owe no federal tax would nonetheless receive a check of up to $4,000 a year for a student’s community service.
In addition, the Obama administration proposes to “streamline the financial aid process” by eliminating the federal form for financial aid and offering families the opportunity to apply for financial aid using their tax returns.
Bethany Stotts is a staff writer at Accuracy in Academia.
