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

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Senate 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 President Obama Supports, Was Also Included in House Version of Package Unveiled Last Week—Inclusion in Final Measure Virtually Assured

In a major step, U.S. Senator Charles E. Schumer (D-NY) announced Friday that a version of his bill to create a brand new tax credit for families paying college tuition has been adopted in the Senate's version of the economic recovery package unveiled this morning. The Senate is due to consider the measure next week. Schumer's tax credit, which he has championed for four years, also was included in the House version of the recovery package, thanks to the efforts of Rep. Lloyd Doggett (D-TX), the measure's House sponsor. This virtually assures the provision's inclusion in the final package.

"This proposal will save middle-class families thousands of dollars and it is well on its way to becoming law," 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."

Like the House, the Senate adopted Schumer's proposal to combine the HOPE credit and the college tuition deduction into a $2,500 credit that would be in effect for two years, starting in 2009. For families currently taking the deduction, this represents an overall benefit for 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 Senate opted to provide a refund worth up to 30 percent of the credit for each student. This differs slightly from the House version, which made the tax credit 40 percent refundable.

The Senate Finance Committee is expected to consider the package, including Schumer's tax credit for college tuition, at a mark-up next week.

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.

The Schumer bill—which was filed on January 14 as S. 250, and now has 12 co-sponsors—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.

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