Tax Savings for Higher Education
Students Often Miss Out
(Continued from 1)
The federal governments primary role with
respect to higher education tax preferences is limited
to the promulgation of rules; the provision of guidance
to tax filers; and to the processing of tax returns,
the GAO noted. And the hodge-podge of tax preferences
and their complexity may lead some not to claim
credit because they judge the added costs of filing
for the credit to outweigh its benefits, the report
concludes. The GAO also said no one has adequately studied
the issue of how well tax credits actually make school
affordable, affect choice of school, or keep students
Internal Revenue Service spokesperson Bruce Friedland
said the IRS job is to administer the tax
code. We dont take stands on tax policy.
However, the IRS has provided a publication, Tax
Benefits for Education, to assist filers.
Tom Ochsenschlager, vice president of the American Institute
of Certified Public Accountants. suggested that Congress
consider combining the Hope, Lifetime Learning Credit,
and Coverdell and 529 plans so people wouldnt
have to try to figure out each year which is best for
them. Winfield Crigler, executive director of
Loan Servicing Alliance, said you almost need
to have a spreadsheet and run your options or have a
tax program and run your options before you can figure
out which provision is the right one for you.
The alliance is trying to convince Congress to simplify
the Student Loan Interest Deduction. The rules
are the most complicated rules in the entire (tax) code.
It is sort of ridiculous to think you could figure it
out for yourself.
Shortly after the GAO issued its report, a federal panel
came up with a specific idea to knock out at least some
of the confusion. Last January, President Bush appointed
a bipartisan Presidents Advisory Panel on
Federal Tax Reform, which offered at the start of
November a series of recommendations for simplifying
the tax code. The panel suggested that Congress knock
out all education savings plans, as well as all retirement
and health savings accounts. (Dont worry if youve
already got one; the panel said existing ones could
continue although you couldnt add more money to
The panel would replace all tax free savings plans and
educational tax deductions with Save for Family Accounts.
Taxpayers could contribute up to $10,000 a year to one
account to cover their choice of education, medical
and retirement benefits as well as the cost of a new
home. Savers could withdraw money from the accounts
at any time.
Overall, the (current) structure of the tax benefits
for education expenses generally provides the largest
benefit to families with students who attend schools
with higher tuition. These tax benefits may allow educational
institutions to increase tuition and fees because a
portion of these costs is offset through the tax code,
the panels report, Simple,
Fair and Pro-Growth: Proposals to Fix Americas
Tax System, explained. It is not clear that
the structure of these benefits actually encourages
individuals to obtain more education than they would
have in the absence of these tax benefits." The
panel also recommended creating a Family Credit allowance
of $1,500 for families with full-time students 20 and
under but not for older students.
What's next? Leaders of the Senate Finance Committee,
who requested the GAO study, issued a joint statement
pledging to look into the matter. Congress needs to
take a hard look at how to make these programs more
accessible and therefore more effective.
Charles Pekow is a senior writer for Community College
Week and contributor to Quinlan Publishing newsletters.
He has covered the field of education for over 20 years
and has won many journalism awards, with his work appearing
in the Washington Post, the International Herald-Tribune,
and Baltimore Magazine.