One of the many under reported stories from the recent “fiscal cliff” debate was the survival of a tax credit that helps many middle class families send their children to college. With so many University of Alabama students using some form of federal assistance to attend the Capstone, the extension of the American Opportunity Tax Credit marks an important moment in the debate about the role of government in spurring higher education attendance.
The tax credit, which has been in effect since 2009, means individual taxpayers who foot the bill for a student’s college costs and earn less than $80,000 a year can write off $2,500 per year for four years.
Frank Mensel, a former congressional liaison for the American Association of Community Colleges who is now a senior fellow at UA’s Education Policy Center, said using tax credits in this fashion is a mixed blessing, but ultimately a positive force.
“It’s truly beneficial to the middle class, and I think it’s very existential in that sense,” Mensel said.
Despite Congressional approval, some think tax credits are not a good way to spur college attendance and drive down its costs.
“Providing financial aid for college through the tax code is not very efficient or well targeted,” said Mark Kantrowitz, an expert on financial aid and publisher of FinAid.org. “Most people file their federal income tax returns in the spring, but need the money to pay for school in the previous fall. Since the American Opportunity Tax Credit is only partially refundable, low-income students who need the most help, but don’t have a tax liability to offset, won’t benefit as much as middle-income students.”
(See also “UA professors take stance on fiscal cliff solutions”)
Many University of Alabama students also utilize Pell Grants, federally sponsored need-based grants for low-income undergraduates, to help fund their schooling.
UA spokeswoman Cathy Andreen said 6,155 Alabama students receive some level of Pell Grants.
Numbers for the academic 2012-2013 year through Jan. 31 show the average size of an individual Pell Grant for a UA student to be $3,850. Close to $24 million has been given to the University by the Pell Grant program to distribute to its students so far in the academic year.
While Pell Grants are available to those with low income, a larger portion of the population can receive Stafford federal loans. Roughly $79 million has been loaned to UA students through the Stafford program so far in the 2012-2013 academic year. The average loan for UA undergrads is $6,600.
While Kantrowitz opposes using the tax code to incentivize education, he strongly supports increased federal involvement.
“The government needs to place a greater priority on investment in postsecondary education. More money to help people pay for college is not just a private benefit, but a public benefit,” Kantrowitz said. “A more educated public not only will save the government money in the long term, but people will be healthier and happier, more likely to volunteer and vote, and crime rates will decrease.”
Kantrowitz said he advocates getting rid of the three available education tax credits, including the American Opportunity Tax Credit and using the savings to triple the current maximum federal Pell Grant from $5,550 to $16,650 a year.
Mensel said we can’t have world-class schools on the cheap.
“Pell Grants are now the backbone of opportunity and workforce development, which will prove our ability to compete with the world, which in turn holds the future of the middle class,” Mensel said.
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