Report: “Harnessing the Tax Code to Promote College Affordability: Options for Reform”
Author: Joe Valenti, director of asset building; David A. Bergeron, vice president for postsecondary education; and Elizabeth Baylor, associate director of postsecondary education, all at the Center for American Progress
Organization: Center for American Progress
Summary: The federal government provides billions of dollars in tax breaks to help make college more affordable, but many of the deductions and credits favor middle- and upper-income families who are already able to save for college. In a report released on Wednesday, the Center for American Progress proposes several changes that would more carefully target the tax-code benefits. The report also endorses a proposal by Rep. Dave Camp, the Michigan Republican who is chairman of the U.S. House of Representatives’ Ways and Means Committee. Mr. Camp has suggested imposing a 1-percent excise tax on college-endowment earnings if the endowment’s assets exceed $100,000 per student.
- To encourage saving for college under a more-equitable tax system: Congress should establish an annual limit for contributions to 529 college-savings plans and cap the overall amount that builds up, tax free, in such plans at $200,000.
- To help families paying for college: The timing and amount of refunds available under the American Opportunity Tax Credit should be adjusted so that eligible middle- and and low-income families can better take advantage of it to cover college expenses when they are incurred.
- To help students manage their college debt: Convert the deduction on student-loan interest into a tax credit, which would benefit lower-income borrowers as well as those with higher incomes.
Bottom Line: The Center for American Progress says its proposals offer a fairer way for the government to provide tax breaks that encourage college savings and affordability.