White House Plans New Education Tax Break

WASHINGTON — The Clinton administration again is touting new tax benefits for higher education, though its ideas may not fare as well as they did back in 1997.
That year, Congress approved two new tax credit programs — the HOPE Scholarship and the lifelong learning credit. HOPE provides up to $1,500 annually for the first two years of college, while the lifelong learning credit allows a 20 percent tuition tax deduction. Both programs generally serve single-parent families earning up to $50,000 a year and two-parent families with maximum incomes of $100,000.
But the president wants to build on those ideas with a new College Opportunity Tax Cut, which would increase the size of the tax deduction and also allow more affluent families to reap benefits. The new plan would provide a 28 percent tuition tax deduction, an increase of nearly 50 percent beyond the current lifelong learning credit, and extend eligibility to families earning up to $120,000 annually.
"Making college tuition tax deductible is an idea whose time has come," Education Secretary Richard Riley said in announcing the plan. But some advocates for low-income students may have problems with the proposal.
Low-income families with little or no tax liability would get few gains under the new credit, says J. Noah Brown, public policy director for the Association of Community College Trustees. Brown says he is "concerned with using the tax code to provide student aid when there's a slate of [federal] financial aid programs that work well."
The tax plan may cost as much as $30 billion, he says. By comparison, the government spends only about one-fourth that much money on Pell Grants. The president's 2001 budget plan provides an extra $716 million for Pell, enough to raise the maximum grant by $200 for the neediest students.
Community colleges welcome that increase, Brown says, though the administration and Congress have the flexibility to add $1,000 to that maximum grant, for top aid of $4,500 per student. The president's plan for Pell is "modest" compared to his tax credit proposal, he says. We could do more on Pell. We're a long way from what's allowed in the law."