Before Republicans relinquished control of Congress, they decided to cut college students a break. Unfortunately, this break is less beneficial to students themselves than to the mid-income parents who support them.
The higher education deduction allows individuals to deduct up to $4,000 for tuition and other education expenses from their taxable incomes. Those who earn $65,000 or fewer ($130,000 for joint filers) qualify to claim the full $4,000 deduction. Those who earn a bit more, $80,000 for single taxpayers and $160,000 for joint, can deduct up to $2,000 annually. Only those who claim the student as an exemption qualify. This means that although a student may pay for his or her own tuition, that student’s parents may actually reap the tax reward.
This tax break is good for mid-income taxpayers, but not for those who need help the most.
Students who pay their own way through college and file their own tax returns will find little relief with this deduction. This is especially the case for students or families who fail to generate enough income to make a $4,000 tax deduction useful.
Tax incentives are not a bad idea, but they must first have enough bite to actually make a difference for those who need it. The HOPE and Lifetime Learning credits are two good examples. These tax incentives reduce tax liability at a dollar-for-dollar amount. The HOPE credit is for degree-seeking students in their first two years of school and is good for up to $1,500 annually. The Lifetime Learning credit, on the other hand, benefits all students but is only valid for 20 percent of tuition expenses (up to $2,000). As with the deduction, these credits may only be used by those who claim the student as an exemption.
Congress should be applauded for helping higher education, but this deduction does little to make college more affordable for independent students and lower-income families. If lawmakers truly want to help, they should start by funding more Pell Grants, decreasing the interest rate on Stafford Loans and expanding the tax credit system.
One possibility could include increasing the dollar amount of the HOPE credit, lengthening it to four years and making it transferable. This would mean that individuals who qualify for the credit but don’t have enough tax liability to fully benefit could sell it to someone with a higher liability. Several states already use transferable tax credits for other purposes.
Above all, lawmakers should enact measures that are actually useful to students themselves. Granting a tax break that can’t be used by those who need it most is a shoddy attempt at making higher education more affordable. At the very least, they could create a tax incentive that actually carries a punch.
