As hard as you work to get scholarships, grants, loans, and other financial aid to pay for college, can you afford for yourself or your family to lose tax credits for the expenses you pay? Most families struggle and make many sacrifices to provide a college education for their young adults. Tax credits help a great deal to ease the financial burden placed on these families and to make college more affordable. Depending upon the results of the next presidential election, you may see a tremendous cut in the amount of tax credits you can claim.
HOPE versus AOTC
Mitt Romney has made his views on paying for college very clear and has stated that students should borrow money or get their parents to pay for college. As such, the Romney-Ryan budget would cut college financial aid for around 10 million college students across the country and would also eliminate the AOTC, or American Opportunity Tax Credit for college tuition.
According to the Urban-Brookings Institution Tax Policy Center, an analysis of Romney’s tax plan shows that the AOTC credit would indeed be allowed to lapse, leaving only the Helping Outstanding Pupils Educationally, or HOPE tax credit. The HOPE credit was initiated in 1997 to help fight the soaring costs of college, and was one of the first of the higher education tax incentives.
In 2009, however, the Obama administration initiated the American Recovery and Reinvestment Act. As part of this act, many families replaced the HOPE credit with the American Opportunity Tax Credit, or AOTC, which was available to more families and provided a higher value. This credit allows for the deduction of an increased amount of student expenses as well as additional types of expenses. In addition, the coverage extended credits to cover the first four years of higher education, while the HOPE credit was only available for the first two years. After those two years, recipients of the HOPE credit had to switch to the Lifetime Learning Credit for the last two years. Obama’s credit also made part of the tax credit refundable. While the total value of the credit is $10,000 over four years, up to $1,000 a year is refundable to low-income students and their families. HOPE and LLC credits are not refundable.
President Obama extended this credit throughout 2012 and proposed that it be made permanent so more students could afford to go to college. If Romney is elected, however, he has made it clear that he will allow this credit to lapse as currently scheduled and will have students to revert to using the HOPE and LLC credits. Because these credits are completely nonrefundable, this would have a great negative impact on very low income students and their families.
While college funding is but one consideration of the candidate’s two vastly different budget proposals, they affect you greatly as a college student. Since paying for higher education is so difficult for so many, it is important to educate yourself as much as possible about all policies that affect you before this election rolls around.