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Group aims for better education tax breaks

WASHINGTON — Millions of poor college students and their families get few tax breaks for higher education costs despite studies that show needy high school graduates are less likely to attend college because they can’t afford it.

But Congress is considering plans to make higher education tax credits refundable for low-income students and expand them to include living expenses and other college costs like books and transportation.

That would put more money into the pocket of students like Scott Perrault, 32, a senior at St. Cloud Technical College in Minnesota.

“I think it would help me to know that I had a refund coming,” said Perrault, a single father of three.

Perrault attends the technical college on a work-study program and earns about $5,000 annually. Last year, he received $3,544 in federal Pell Grants that mostly help students in households with annual incomes less than $32,000 and can be used to pay for tuition and other education expenses. Perrault’s tuition costs were $3,441.

Still, he says he struggles to pay his bills because Congress has not increased the grant to keep pace with inflation. Research also shows that low-income students have more financial needs unmet after receiving financial aid than wealthier students.

Perrault doesn’t earn enough to qualify for the higher education tax credits aimed at making college more affordable because his income is not high enough for him to pay taxes.

Households earning up to $114,000 and single taxpayers earning up to $57,000 can claim the credits, but one student can’t claim both.

Under the Hope Tax Credit, a family or individual can claim a tax credit of up to $1,650 for tuition expenses during each of the first two years of college or technical school. There are no limits on the number of students in a family who can claim the credit.

The Lifetime Learning Credit is a tax credit of up to a maximum of $2,000 for tuition and fees for postsecondary education. A taxpayer can claim the credit only once each year no matter how many students are eligible for it.

The Hope and Lifetime Learning tax credits mostly benefit the middle-class.

Households that earn between $30,000 and $110,000 claimed 73 percent of the total $6 billion credits in 2004, or $4.4 billion, according to a February report by Congress’ Congressional Research Service. Households earning less than $30,000 claimed less than 27 percent of the credit, or about $1.6 billion.

“Congress has it backwards,” said Tiffany Archer, 26, a senior at Missouri State University. “It should be the other way around.”

Archer, who is married and has a child, knows exactly what she is talking about.

A year ago, she earned about $6,000 annually and did not earn enough to qualify for the tax credit. Then, Archer said she was desperate for money.

Today, she works full-time and earns $28,000 annually while attending school. Because she has taxable income, she is eligible for the tax credit.

“It would have helped me even more when I earned less,” said Archer, an information technology employee at Ozarks Technical Community College in Missouri.

Proponents of making the taxes refundable argue the current tax credits don’t go to the students who need them the most, who are less likely to go to college because it is too expensive.

“The tax credits can’t be an incentive to go to college if (people with low incomes) can’t get them,” said Aviva Aron-Dine, a policy analyst for the Center on Budget and Policy Priorities.

The center estimates that as many as 4 million high school age youngsters who are potential college students won’t receive any benefit from the tax credits because their families’ incomes are too low. The center conducts research on federal and state policies that affect low- and moderate-income people.

Proposals in Congress to make the tax credits refundable have an ally in Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee. The committee is expected to consider a plan to make the credits refundable within the next month.

It is a “very common sense idea,” Baucus said in a speech last month.

Non-tuition expenses for college such as living costs, books and transportation that cost students more than $10,000 annually are another economic burden for the poor.

“It just sucks,” the way the current law is written, said David Baime, vice president of government affairs for the American Association of Community Colleges that represents about 1,200 community colleges. Baime is lobbying Congress to expand the credit to include other educational expenses like living costs, transportation and books.

On the Web:

Senate Finance Committee

Center on Budget and Policy Priorities

Congressional Research Service