House Adopts Schumer's College Tuition Tax Credit in Draft of Economic Recovery Package

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House Adopts Schumer's College Tuition Tax Credit in Draft of Economic Recovery Package

Proposal Provides Middle-Class Families With a $2,500 Credit Per Student—More Than Doubling The Current Benefit For Tuition-Paying Families

Proposal, Which Obama Supports, Also Expected To Be Included In Senate Version of Package

In a major step, U.S. Senator Charles E. Schumer (D-NY) announced Thursday that his bill to create a brand new tax credit for families paying college tuition has been adopted in a $825 billion economic recovery package unveiled by House lawmakers this morning.

"This is a major breakthrough for a proposal that will save middle-class families thousands of dollars," Schumer said. "A college education is a necessity for America's children and it is being priced as a luxury item. This bill is a new approach that would provide middle class families with one dollar off their taxes for every dollar spent on college tuition. In tough economic times like these, this bill will offer families real relief."

The House adopted Schumer's proposal as a $2,500 credit that would be in effect for two years, starting in 2009. This represents an overall benefit for tuition-paying families that is at least two-and-a-half times greater than the current tax deduction available under law. For some families, the increase in the benefit will be even greater. If adopted, a family could claim Schumer's new credit for up to three children in any given year. For families with children in college but who do not have enough income tax liability to qualify for the credit, the House opted to provide a refund worth 40 percent of the credit.

The Senate, which will be unveiling its own version of the recovery package, is also expected to include Schumer's college tuition credit in its draft.

In the last decade, college tuition has skyrocketed across the country in light of rising costs. With the recent tightening in the student loan credit market, more students of all income levels are being forced into borrowing from both federal and private lenders to finance college and they are borrowing in higher amounts than ever before. Others are forced to make tough decisions about whether or not higher education is feasible. According to the federal Advisory Committee on Student Financial Assistance, cost factors prevent 48 percent of college-qualified high school graduates from attending a four-year institution and 22 percent from attending any college at all.

To provide real relief for middle class families saddled with skyrocketing tuition costs, the senators today announced that they are fighting to significantly increase the tax benefits provided by the current higher education tax incentives. They said that if it passed, the tax credit would take affect as soon as this tax year.

The bill introduced today would combine the HOPE and Lifetime Learning credits and the above-the-line tuition tax deduction into one credit of up to $4,000 per student. For middle class families currently taking the HOPE credit, making less than $60,000, the new credit would more than double the existing tax benefit. If these families currently use the college tuition deduction, the maximum tax benefit could be quadrupled or more, depending on a family's circumstances and tuition costs. The tax credit would go into effect for tax year 2009 and help the millions of individuals that apply for higher education tax credits each year. The bill is written in such a way so that even students with modest tuition—such as those attending a community college—still receive a sizeable credit. The lifetime benefit per student is set at $16,000, and it can be used for college or graduate school. The new credit will also include expenses for tuition, fees, and textbooks and can be used for up to three students per household. Up to 50 percent of the cost of textbooks, up to $400, can be claimed as part of the $4,000 credit each year.

The college tuition tax credit bill works much better than existing tax incentives and would save families thousands more dollars every year. For example, a family making $60,000 this year would save $600 this year if they use the current tuition deduction, or $1800 if they use the HOPE credit. Under the new proposal, that family would see their entire federal tax liability disappear and they would save $3,265 for each student, every year. A family making $70,000 a year, with $8,000 in out of pocket tuition costs, would save the full $4,000 under Schumer's new bill. Under the current incentives, they would likely save just $600 because they would not qualify for the HOPE credit at all.

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